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Daily Newsletter, Sunday, 03/24/2002

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The Option Investor Newsletter                   Sunday 03-24-2002
Copyright 2001, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

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Posted online for subscribers at http://www.OptionInvestor.com
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MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        WE 3-22          WE 3-15          WE 3-08          WE 3-01
DOW    10427.67 -179.56 10607.23 + 34.74 10572.49 +203.63  +400.71
Nasdaq  1851.39 - 16.91  1868.30 - 61.37  1929.67 +126.93  + 78.20
S&P-100  580.09 - 11.04   591.13 +  1.29   589.84 + 13.68  + 22.12
S&P-500 1148.70 - 17.46  1166.16 +  1.85  1164.31 + 32.53  + 41.94
W5000  10776.86 -127.83 10904.69 + 14.02 10890.67 +330.66  +380.72
RUT      502.39 +  3.27   499.12 -   .73   499.85 + 21.51  + 13.27
TRAN    2877.27 - 74.27  2951.54 - 58.70  3010.24 +113.11  +171.48
VIX       19.62 -  1.15    20.77 -  0.84    21.61 -  0.52  -  2.76
VXN       37.56 -  2.70    40.26 -  1.36    41.62 -  0.32  -  6.63
TRIN       1.12             0.56             0.73             0.74
TICK       +647             +855             +927            +1029
Put/Call    .66              .64              .62              .94
******************************************************************

 
The Winning Streak Ends!  
by Jim Brown

What a difference a week makes! The prior two weeks capped a five
week winning streak for the Dow that left it within a handful of
points from 10600 at each Friday's close. This week started well with
Monday and Tuesday seeing the Dow trade well over 10650 both days
as investors expected the Fed to leave rates unchanged and say
positive things bout the economic recovery. All of that happened
as expected but was quickly followed by more cautionary comments,
and fears of an aggressive Fed in the near future. Those fears
subsided quickly when they were replaced with even greater fears
of a new recession in our future and a flurry of earnings warnings.


 

 



 

 

So many topics and so little space! Leading the big news we will
start with the controversy over GE. As the largest company in the 
Dow it has a major impact in Dow direction. Unfortunately that
direction was down after several negative news stories. After
trading at a high of $40.55 the stock dropped to a five week low
under $37 on Wednesday. Bill Gross, bond fund manager at PIMCO,
said he was concerned about their disclosure practices and their
heavy debt load. GE sold $11 billion last week and said they could
go out for another $50 billion earlier this week. This caused a run 
on the stock which only slowed after GE announced on Friday that
they were reaffirming their 2002 full year earnings and were going
to reduce their short term debt going forward. Unfortunately investors
did not race back into the stock after the GE comments. The volume
was only 30 million shares compared to 56 million on Thursday. The
problem it appears is nobody wants it even at $37. If this trend
continues then the Dow will have one more anchor to drag.

Adding to the Dow's problems was an earnings warning from McDonalds.
The company warned on Friday that sales around the world were under
pressure for many different reasons including weak economies and
mad cow disease. The company said it would miss estimates for the
quarter and the year. They were forced to close many restaurants 
which were under performing. The stock dropped -1.05 for the day
and could be under pressure going forward.

Another Dow component took a hit and dragged several others with
it. An internal memo from HWP said that revenue and profits in
the services division was well below plan. The memo said that orders
for technology services were "very soft" and called it a "cause
for concern." The services division accounted for 17% of the $45
billion in revenue last year. A dramatic drop in this high profit
performer could cause HWP to miss estimates substantially. HWP
dropped to a low of $17.50 on the news but rebounded to close down
only -.35 cents but at a five month low. However, the worry about 
weak services orders knocked -1.18 off of IBM and will continue to 
pressure the stock next week. IBM gets more than 20% of its revenue
from its services division. Microsoft also suffered from the 
backlash as weak service orders could equate to weak software sales
as well. INTC dropped nearly $1 on the same concerns. The birds
of a feather concept works great when the news is good but bad
news ripples downward even faster.

The Dow problems above paled in significance to the ramifications
from the Philadelphia Fed Survey on Thursday. The index headline
number was 11.4 and much less than the expected 16. This was the
first drop since November and the new orders component was the 
weakest since December. This brought an immediate wave of warnings
that the economic rebound everyone had been bragging about was
just the inventory correction process and real demand was simply
absent. The double dip scenario crowd took center stage and the
markets felt the impact. Historians pointed to the past when 
almost every prior recession was met with a second dip after the
oversold phase was seen. 

Adding to the worry about another dip was warnings from several
companies that they would miss earnings and they saw no recovery
in their future. If you think about it this is nothing new. Everybody
except maybe the chip makers has been saying "still no visibility"
all month but the bulls simply ignored it. Even GE said they saw
no recovery in their future when they reaffirmed earnings the first
time. Solectron for instance announced earnings inline with already
lowered estimates but warned that the next quarter will be lower.
The biggest comment was that much of their $4 billion in outstanding
orders may get pushed into the end of NEXT YEAR. The contract 
electronics sector, where chips meet boards and become actual
equipment, is still very weak. Reading between the lines would
indicate that there are no orders for completed equipment if 
production is being delayed as much as 18 months. Does this mean
the inventory correction orders are already over and companies
are expecting another dip before things get better. It would appear
so to investors. As I mentioned above the only tech sector still
expressing optimism is the chip sector. AMAT announced a 2:1 split
on Thursday night and said they still "expect" orders to rise
10-15% in the next quarter. There is no rush to buy chip equipment
but with the new .09 micron process for new chips those companies
who want to be competitive must step up to the table.

Even the oil services sector, which had been on a roll, came up
dry on Friday. BHI warned that declining rig counts would impact
their earnings and the stock dropped -2.55. Quick on the trigger
Salomon Smith Barney downgraded BHI, RDC, NBR, SLB and TDW. The
analyst said weak Latin American economies and slowing consumption
due to higher oil prices made the sector overpriced by as much as
20%. 

Where did all the bullishness go? Reality of a possible double dip
enhanced price concerns that were already present. Many analysts
have been preaching the overpriced market mantra for several weeks
and it only intensified after the +1000 point Dow gain in the last
five weeks. This is a constant babble and I do not want to place
too much emphasis on its credibility. Still, when traders start
looking for excuses in times of trouble that is the first one they
find. Anyone looking closer than the talking heads on stock TV knows
that other factors are more important.

First there is that +1000 point gain. Did anyone expect there to be
no profit taking? Of course not! Only the hobby traders get caught
flat footed after those types of gains. Also, historically speaking,
the last five trading days of March have also been rough the last
several years. This is a normal cyclical thing, which should be
expected. Add in all the warnings and double dip talk and it just
becomes more likely. 

For next week the Dow still looks like it could be under pressure.
There was an intraday bottom at 10400 on Friday but it could just
be a resting place instead of a bottom. The S&P has the same thing
at about 1145 but you would be stressed to call it support. 1850 is
performing the same function on the Nasdaq. I would like to stress
that these are not support levels but simply areas where some buyers 
stepped in to snag a few shares at a discount.

The name of the game appears to be "dips are for snacking" not buying.
Funds are seeing cash come into accounts but they are not rushing out
to buy something. According to TrimTabs.com $4.4 billion in new cash
flowed into funds for the week ended on Wednesday compared to a
whopping $7.6 billion the prior week. In comparison to the past
couple months this is a huge inflow. This apparently means consumers
saw the Dow about to breakout to a new post attack high and wanted
to buy a ticket for the rally. This "headline" buying is part of
the problem that is pushing the VIX to new lows. The herd buys the
tops and sells the bottoms and considering the $12 billion inflow
of cash over the last two weeks you would be hard pressed not to 
see the trend. 

The VIX closed under 20 on Friday at 19.62 and the VXN closed near
an all time low of 37.56. Does anyone else think it is strange that
the volatility indexes fell on a day the markets dropped? This is
contrary to the conventional trends. People are simply so sure that
the markets are going up that they are not buying puts to protect
themselves. This is dangerous complacency in its highest form. 

What should investors do? I think the answer is clear. The closer
we get to April earnings the more earnings warnings we will see.
There is a stronger possibility that the markets will move sideways
or down instead of up. We have failed so many times at 10635/1175 
that traders now want to see if there is a bottom. Once the market
is assured there is support nearby then traders will feel better
about buying stocks and attempting the breakout again regardless 
of the possibility of a second economic dip ahead.   

I revised my entry/exit points last Sunday to 10475/1850/1150
and all of those levels were breached on Thursday. Since the Nasdaq
appears to be the index to watch next week I am going to revise
my ENTRY point to 1875. If you are not long tech stocks then I
would not open new positions until after the Nasdaq trades over
Friday's high of 1873. The index closed at 1851 on Friday and 
could be headed lower. Many tech stocks that rallied on Thursday
did so on short covering after the huge Wednesday drop. They 
rallied right to resistance and collapsed again. I am changing
my Dow entry point to 10500 since it failed just below that on
Thursday and Friday. We only want to be long the market if the
market can take out the prior resistance. The number for the S&P
is 1155.

Should the markets continue to show weakness I would short the
S&P below 1140, the Nasdaq below 1825. (QQQ = 36) Real support
for the Nasdaq is not until 1750. (QQQ = 33.50) Above all,
regardless of the options you purchase, puts or calls, I would
strongly advise buying more time than normal. With the volatility
so low the option prices are also low and you can afford to buy
that extra time insurance. When the volatility returns you will
be richly rewarded as those option prices expand again. 

The weak before Good Friday is typically flat to down. Fund
managers window dress their portfolios the prior week in order
to take a long holiday. The first two days after Easter are
normally bullish as traders pickup bargains from the prior weeks
drop. This would suggest buying the close next Thursday for a
quick trading play could be higher odds than usual. I will update
that outlook on Tuesday night. Volume next week could be even
worse than the 1.2B NYSE, 1.3B Nasdaq on Friday. Any surprise
news events could produce some serious market swings. Be prepared. 

Unfortunately, the "Sell Too Soon" close has been put back on
the shelf until later. Until then....

Enter Passively, Exit Aggressively!

Jim Brown
Editor


It is with great pleasure that we announce the addition of
Leigh Stevens as Chief Market Strategist at OptionInvestor.com

Leigh was working a Cantor Fitzgerald with an office on the 105th
floor of the WTC when the attack occurred. Fortunately Leigh was
out on leave finishing his new book called "Essential Technical
Analysis" at the time and was spared. After that close call
Leigh decided to move to Denver and join OptionInvestor. We
are pleased and fortunate to have someone as knowledgeable and
experienced as Leigh join our staff.

Look for his daily input in the Market Monitor and in the pages 
of Option Investor.

Check out his latest contribution here:
http://members.OptionInvestor.com/marketwrap/032102_1.asp


BIOGRAPHY
Leigh Stevens
Lstevens@OptionInvestor.com

Leigh Stevens began advising a trading and investment clientele
in 1982, at the advent of the long-term equities bull market,
as a stockbroker at the Park Avenue office of Merrill Lynch in
New York City.  Leigh was later employed at Morgan Stanley Dean
Witter where he continued to advise equities and stock index
oriented customers until 1986, when he joined PaineWebber as the
stock index and fixed-income derivatives strategist.  He later
became senior technical analyst at PaineWebber, taking over from
Jack Schwager and was widely followed by the brokers there,
especially by those with an active option and index trader
clientele.

Leigh indicates that "it was my great good fortune to have been
privately mentored by a hugely successful professional stock
options and index trader, Mark Weinstein. Mark made brilliant
use of technical analysis techniques and principles, which he
trained me in. I later brought Mark to the attention of Schwager
while we worked together at PaineWebber and Jack featured him in
his first Market Wizards book, where I am also mentioned."

In 1993, Leigh was invited to join Dow Jones Telerate as senior
manager for technical analysis and spearheaded the growth in the
institutional trading room environment of Dow Jones TradeStation,
the premier technical analysis/systems testing and development
application.  While at Dow Jones, he continued to write and train
in the area of the technical analysis, using the Dow Jones Markets
magazine and client seminars as his vehicle, as well as by
overseeing the technical analysis and product training of 30 Dow
Jones TradeStation support personnel.

In 1998, Cantor Fitzgerald, the largest third market equities and
fixed income broker-dealer in the world, making markets for the
major mutual funds, Wall Street firms like Merrill Lynch and
Goldman Sachs and online brokers such as Charles Schwab, tapped
him to revamp the Cantor Morning News web site, the most highly
rated morning market summary going out to the major institutional
stock trading community (1999 Reuters survey).

While at Cantor, Leigh also wrote the highly popular "Stevens on
Technical Analysis" weekly columns for CNBC.com.  His ability to
make technical analysis understandable and useful to the average
trader and investor, lead to his authoring, Essential Technical
Analysis, due out in spring 2002 from John Wiley & Sons.  While
on leave writing this introductory book, Cantor Fitzgerald, which
occupied the top floors of #1 World Trade Center, was devastated
in the 9/11/01 terrorist attack.

While personally saddened by the loss of so many colleagues, Leigh
was also then able to become more involved in web-based advisory
services, joining OptionInvestor.com as chief market strategist.
According to Leigh, "my first love is the market and advising
individual traders and investors. My vehicle of choice for doing
that is the Internet and OptionInvestor.com offers the premier
service in this field."







********************
INDEX TRADER SUMMARY
********************

I Cannot See It

We got a little chart-happy in here tonight... hope you can 
forgive me. It would be easy to fill a section like this with 
15 to20 charts each night, but who wants to flip thru all that? So 
we whittled our visit down to an array of pertinent facts, or at 
least those that seem pertinent to me!

(Daily Chart: CSCO)

 

Divesting from the norm of our sector watch for one snapshot, 
let’s peruse mighty CSCO for a bit. I know some readers may think 
of me as just an “index guy” because the human mind like to 
compartment and pigeon-hole ideas. Would you believe I might know 
a thing or three about stocks as well? Actually, any technical 
trader should be able to game whatever symbol is pasted in front 
of them. Show me the symbol for Garbanzo bean futures (don’t 
exist) and we’ll trade them just the same!

Anyway, CSCO depicts all that’s wrong with tech right now. I 
personally expected tech to ramp this past week based on daily 
chart signals poised to turn positive. I also thought it would be 
the bull’s last great act of defiance and hoped to short new 
recent highs with both barrels, but that didn’t happen. We noted 
a half-handful of problems CSCO has right now, and this chart 
mirrors the Nasdaq as one would expect.

Descending channel resistance held. 50 DMA just made a bearish 
cross below 200 DMA, both are pointing down and both are above 
price action in resistant fashion. The little bull flag (pink) 
failed to breakout and close above resistance. Upside-down hammer 
candle on Friday that closed back inside the bull flag is 
bearish. Volume peaked on the way down and declined from the very 
day price action began moving up. Declining volume on rising 
price action is bearish. Lastly, stochastic values are now in 
pure-bear decline.

SOX calls, anyone? Sell them short for best odds here, as 
everything I see with no exception in this chart screams for 
lower prices ahead, probably to black and/or red channel lines of 
support.

(Weekly/Daily Charts: PPH)

 

Those elusive Head & Shoulder patterns. Druggies, er, I mean 
pharmaceutical players thought they had one ready to bust it 
loose in bullish fashion right here until BMY needed aspirin. At 
best is closed for one day above this arbitrary neckline before 
collapsing in bearish fashion from there. Watch for a sideways 
coil consolidation here and short that puppy when it break lower 
again. Stochastic values in bearish fashion at the time would 
confirm such a pattern should it develop, of course.

(Weekly/Daily Charts: XAU)

 

The last time gold made its big move down I was caught not 
watching and missed seven index points profit. Since then it hit 
the bottom of a descending channel and screamed back up these 
past eleven days, culminating with a three-day run. The engulfing 
candle (or outside day) Wednesday told us prices would go higher, 
and gold stocks could have made for nice short-term plays. From 
here I would expect the index to retest recent highs and possibly 
move beyond there.

I actually first drew this channel using two lows and one high 
point of reference in my laptop when back in NY. The laptop is 
still there and so is this original channel. Fine lot of good 
that does me this week! With six personal PCs and all of them 
sporting Qcharts I’d better become adept at moving saved files 
around, hadn’t I? This omission cost me some bucks on XAU calls!

We’ll get around to an article on drawing channels out in blank 
space with only three price points to reference soon... if you 
don’t already know that trick, it’s one not to miss.

(Weekly/Daily Charts: SOX)

 

What would the night be like in here without pulling up our SOX? 
Eric tells us this sector is up 14.4% in Q1 to date and at one 
point was more like +25% near recent highs. We don’t see a return 
to those levels right now. Matter of fact, the SOX might be lucky 
just to maintain those gains to finish out the stretch. You & I 
both know that a bunch of “traders” out there never even bother 
looking at charts. They are merely playing end-of-quarter markup 
hopes and buying every dip to catch the big ramp. Might work, 
might not. 

If big funds want to dress windows with investor’s fleece they 
will have to paint this tape against a bearish triangle and 
bearish stochastic values. Anything can happen right now and 
chart signals do turn on a dime, but fading these technicals here 
on a prayer that markup season will save long entries is not 
trading. Those who tried that last March got totally creamed in 
the process, and this one might not turn out much differently.

(Daily Charts: VIX and Dow)

 

And for everyone not sick of hearing about the VIX any longer 
(both of you) we have yet another blurb about it. Can you believe 
the Dow is -240 index points off recent highs and the VIX 
actually shed -2 index points during the drop? What does that 
tell us about irrational dipsters snapping up calls right now?

Yes, I’ve heard & read all the theories on why a lower VIX may be 
benign to the rally this time. “It’s all different this time” go 
the recent theories more numerous than stories about aliens at 
Rockwell. Guess what? I’ve heard the same collective mantra each 
time the VIX hit 20 or below. I’ve also bought puts with two or 
three month’s time value all the way down each time as well. No 
need to ask me how that strategy fared before: just compare 
history on any index chart on what happens when the VIX 
inevitably cycles back up to high 20s from there. My current DJX 
May 104 puts entered at 10,600+ are not suffering tonight, nor do 
I expect them to in the days & weeks ahead!

(Weekly/Daily Charts: XNG)

 

Here’s a little sell & hold freebie... natural gas. Long-term 
charts are looking toppy, right in time for the seasonal weakness 
of summer. Nat gas two biggest uses are heating and electricity 
generation but close behind that is agricultural consumption by 
farmers. What for? To dry all that small grain down to acceptable 
specs for sale. Ever drive by any grain farms in the country and 
see steam rising out of cylinder mesh structures on a crispy fall 
day? That’s the work of natural gas turning water to vapor. 
Seasonal strength returns in late summer-early fall, so XNG Jul 
170 puts @3.50 “ask” right now could easily double (or better) 
with a possible target to 160 area by mid-summer. One of those 
low beta, buy & forget type plays using a -50% stop or no stop to 
risk it all and park in the account for months ahead. 

Summation
My nightly sector scan showed roughly two dozen downside play 
setups and about 18 of them are listed as shorts to track in 
Sector Share Gameplan. Doesn’t mean the markets won’t turn tail 
and head for the moon on Monday, but a preponderance of sectors 
are looking bearish right now. So we feel the fear of upside 
short squeeze but trust the charts to keep us on the proper side 
of high-odds direction.

Fundamentals say markets should rally into the month-end ramp and 
earnings fallacy ahead. Technicals point to further weakness 
right now. I for one with trust the charts and trade with 
trepidation as always.

Best Trading Wishes,
Austin P 




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**************
Editor's Plays
**************
Will They or Won't They? (we still don't know!)

The HWP/CPQ vote was proclaimed a win by HWP but only by the
smallest of margins. We will not know the real outcome for 
about two weeks. The combination play from last Sunday is
still in progress. This is an update.

Last week:


 

Update:


 

On the April positions the call has decreased to around a quarter
and the put traded as high as $.75 on Friday. Because the decision
will not be known for as long as two weeks HWP stock is still 
undecided. However the memo on slow service sales on Friday could
pressure HWP next week and help push the stock down. If the merger
announcement is made as well some analysts have said they could
see HWP below $15.


Last Week:

  

Update:

 

The longer term plays of buying a leap call on the dip and selling 
a leap put at the same time is looking good. The call decreased to
$3.00 on Friday and the put is increasing in price with every dip.
The target of $3.50 on the call has already been met but I would
wait until the stock finds a bottom before starting the play. If
you are bullish on HWP long term I think this will be a winner. I 
would like to see HWP hit $15 before initiating the play.

******************** 

PVN Update



 


Providian was upgraded on Friday when CIBC World Markets said "the
liquidation risk is gone." They have turned this business around and
have become attractive as a take out target. Morgan Stanley said, 
"it is difficult for us to imagine downside risk below $5." The 
company also settled some class action lawsuits and defaults from
risky borrowers have slowed. I have written about this stock several
times since November so you cannot say I did not warn you.

**********************

Low Volatility Plays

Because the volatility has shrunk so much it makes combination plays
much more attractive. Considering the possibility for a major market
move in the next several weeks I am going to offer a couple today.

QQQ combination



 

The Nasdaq is looking weak and should it break 1825 it could easily
see 1700 again. This would knock the QQQ back to the $33.50 range.




 

I would buy the April $37 call and April $36 puts for a net debit
of $2.25. If you only want to buy one side I would bet on the put
based on the chart.


*************************

Semiconductor sector



 


 

The semiconductor sector is attempting a breakout of resistance
from 2001. If the SOX can clear 650 the SMH should break 50. Once
a breakout occurs there is a good chance a very strong short
covering rally would appear. On the bearish side it is possible
there could be some more earnings warnings pointing to another
economic dip. 

That is why a combination play looks so good. A strong move in
either direction could be profitable.

Once direction is established I would close the losing side since
the strike prices are $5 apart. Unlike the QQQ it requires much
more movement to recover the losing side.

*******************

I strongly recommend buying options that are farther out than
April. How much time you buy is up to you but most everyone
would expect the move to occur within 60 days. That gets
us into the normal April/May sell off periods.

*******************

DJX May Puts



 

There is a good chance backed by a strong historical trend that the
markets will sell off between April-15th and May-15th. Speculators
could stock up on May DJX puts whenever the Dow hits 10600 between
now and then. They should cost under $2.00 whenever that happens.
This is a gamble so don't buy too many but use them as a hedge
against any long plays you might have.

***************  

As always, do your own research and be comfortable with the
downside risk before entering any play.

Good Luck

Jim



****************
MARKET SENTIMENT
****************

Tech Correction Ahead?
By Eric Utley

The Nasdaq-100 Bullish Percent ($BPNDX), in terms of risk, made
a big move in last Friday's session.  The strength of tech stocks
will be put to test in next week's trading.

Since February, the $BPNDX had been in Bull Confirmed mode by
way of Bullish Percent through last Thursday.  That changed last
Friday when the indicator reversed into Bull Correction.  Like
the description below suggests, Bull Correction is a market that
is typical of a pullback or correction in stocks.  The
absolute level, however, is equally as important as the market
stance.

The $BPNDX reached 70 not too long ago, meaning that 70 of the
Nasdaq-100 (NDX.X) were on buy signals.  With that kind of
deliberate, dare I suggest speculative, buying levels reached,
the market grew overbought as we pointed out in previous
columns.  Now that the $BPNDX has reversed into a corrective
market stance, the downside risks increase.  

What that means for bulls in NDX-type stocks is that risk
management becomes all the more critical in the investment
process.  If you're sitting on big gains in some of the
chip equipment stocks such as KLA-Tencor (NASDAQ:KLAC) or
Novellus (NASDAQ:NVLS), then some sort of downside protection
needs to be implemented.  That can be as simple as setting a
protective stop-loss to as complex as a natural hedge.  Or,
you can buy a protective put on an equal ratio basis to your
underlying position.  With as cheap as implied volatility is
selling for, using a put makes sense.

The low level of implied volatility is coming from the drop
in the CBOE Market Volatility Index (VIX.X).  It closed below
the 20 level for the second consecutive session in last
Friday's trading.

What's interesting is that some of our indicators are starting
to come together in terms of bearishness.  We saw the VIX
dip below 20 last Thursday.  Bearish.  We saw the $BPNDX
reverse into Bull Correction Friday.  Not bullish.  And the
S&P Commercials maintained a hefty short position through the
most recent reporting period.  Bearish.

The confluence of these three indicators comes at an interesting
time in the business cycle, using the recent macro data as
our reference.  They certainly make one test his or her bullish
convictions.  If nothing else, they reinforce the need for
proper risk management.

-----------------------------------------------------------------

Market Averages


DJIA ($INDU)



52-week High: 11350
52-week Low :  8062
Current     : 10428

Moving Averages:
(Simple)

 10-dma: 10549
 50-dma: 10079
200-dma:  9995

S&P 500 ($SPX)



52-week High: 1316
52-week Low :  945
Current     : 1149

Moving Averages:
(Simple)

 10-dma: 1160
 50-dma: 1128
200-dma: 1144


Nasdaq-100 ($NDX)



52-week High: 2071
52-week Low : 1089
Current     : 1470

Moving Averages:
(Simple)

 10-dma: 1495
 50-dma: 1494
200-dma: 1545


Gold and Silver ($XAU)

The XAU capped off a very strong week last Friday be earning
the day's best performing sector spot.  The XAU finished 3.44
percent higher in Friday's session.  The index gained 9.60
percent last week.

Sector leaders included Gold Fields (NASDAQ:GOLD), Harmony
Gold (NASDAQ:HGMCY), Agnico Eagle Mines (NYSE:AEM),
Anglogold (NYSE:AUD), and Meridian Gold (NYSE:MDG).

52-week High: 70
52-week Low : 46
Current     : 68 

Moving Averages:
(Simple)

 10-dma: 64
 50-dma: 63
200-dma: 57


Oil Service ($OSX)

The OSX was the poorest performing sector in last Friday's
session with its 4.95 percent drop.  A warning from Baker
Hughes (NYSE:BHI) combined with a host of bearish analyst
sentiment put the sellers in control for the first time in
a long time.

Leading to the downside included Baker Hughes, BJ Services
(NYSE:BJS), Rowan Companies (NYSE:RDC), Tidewater (NYSE:TDW),
and Cooper Cameron (NYSE:CAM).

52-week High: 136
52-week Low :  58
Current     :  98

Moving Averages:
(Simple)

 10-dma: 100
 50-dma:  88
200-dma:  87

-----------------------------------------------------------------

Market Volatility

The VIX closed below the magical 20 level for the second
consecutive session in last Friday's session despite the
overwhelming weakness in stocks.

The VXN traced an inside day, finishing slightly higher on
the weakness in the Nasdaq-100 (NDX.X).

CBOE Market Volatility Index (VIX) - 19.98 -0.75
Nasdaq-100 Volatility Index  (VXN) - 36.98 -1.18

-----------------------------------------------------------------

          Put/Call Ratio  Call Volume   Put Volume
Total          0.66        405,502       268,190
Equity Only    0.61        375,596       230,703
OEX            0.84          5,087         4,272
QQQ            0.44         42,632        18,617
 
-----------------------------------------------------------------

Bullish Percent Data

           Current   Change   Status
NYSE          64      + 0     Bull Confirmed
NASDAQ-100    64      - 1     Bull Correction
DOW           77      + 0     Bull Confirmed
S&P 500       75      - 1     Bull Confirmed
S&P 100       77      - 1     Bull Confirmed

Bullish percent measures the number of stocks in an index 
currently trading on a buy signal on their point and figure 
chart.  Readings above 70 are considered overbought, and readings 
below 30 are considered oversold.

Bull Confirmed  - Aggressively long
Bull Alert      - Cautiously long
Bull Correction - Pause or pullback in upward trend
Bear Alert      - Take defensive action if long
Bear Confirmed  - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend

-----------------------------------------------------------------

 5-Day Arms Index  1.04
10-Day Arms Index  1.08
21-Day Arms Index  1.01
55-Day Arms Index  1.22

Extreme readings above 1.5 are bullish, and readings below .85 
are bearish.  These signals don't occur often and tend be early, 
but when the do, they can signal significant market turning 
points.

-----------------------------------------------------------------

Market Internals

        Advancers     Decliners
NYSE      1329           1810
NASDAQ    1512           2006

        New Highs      New Lows
NYSE      163             44
NASDAQ    152             24

        Volume (in millions)
NYSE     1,243
NASDAQ   1,335

-----------------------------------------------------------------

Commitments Of Traders Report: 03/19/02

Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the 
Chicago Mercantile Exchange and Chicago Board of Trade. COT data 
can be found at www.cftc.gov.

Small specs are the general trading public with commercials being 
financial institutions. Commercials are historically on the 
correct side of future trend changes while small specs tend 
to be wrong.  

S&P 500

S&P Commercials maintained their relatively higher net bearish
position in the prior week by dropping a significant number of
longs and a small number of shorts.  The group's % of OI,
however, increased by a larger amount.  Small traders maintained
their yearly high net bullish position.

Commercials   Long      Short      Net     % Of OI 
03/05/02      361,254   445,989   (84,735)  (10.5%)
03/12/02      396,050   483,606   (87,556)   (9.9%)
03/19/02      322,938   410,494   (87,556)  (11.9%)

Most bearish reading of the year: (111,956) -   3/6/01
Most bullish reading of the year: ( 36,481) - 10/16/01

Small Traders Long      Short      Net     % of OI
03/05/02      161,711     60,941  100,770     45.3%
03/12/02      179,825     75,025  104,800     42.6%
03/19/02      145,262     43,066  102,196     54.3%

Most bearish reading of the year:  36,513 - 5/01/01
Most bullish reading of the year: 104,800 - 3/05/02
 
NASDAQ-100

NDX commercials dropped a big chunk of their long position,
resulting in a drastic climb in the group's net bearish
stance.  Small traders went the opposite direction by shedding
a larger number of short contracts, establishing a firm net
bullish position.

Commercials   Long      Short      Net     % of OI 
03/05/02       33,549     35,419    (1,870)   (2.7%)
03/12/02       37,415     42,942    (5,527)   (6.9%)
03/19/02       24,792     33,699    (8,907)  (15.2%)

Most bearish reading of the year: (15,521) -  3/13/01
Most bullish reading of the year:   7,774  - 12/21/01

Small Traders  Long     Short      Net     % of OI
03/05/02       11,961    11,214       747      3.2% 
03/12/02       14,571    13,045     1,526      5.5%
03/19/02       11,637     5,527     6,110     35.6%

Most bearish reading of the year:  (9,877) - 12/21/01
Most bullish reading of the year:   8,460  -  3/13/01

DOW JONES INDUSTRIAL

Dow commercials shed a significant number of both long and
short positions.  The result of their actions was a drastic
drop in the group's net bullish position.  Small traders
reduced their total position, too, resulting in a modest
drop in the group's net bearish position.

Commercials   Long      Short      Net     % of OI
03/05/02       37,036    25,554   11,482     18.3% 
03/12/02       35,080    23,204   11,876     20.4%
03/19/02       20,858    13,283    7,575     22.2%

Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
03/05/02        6,589    13,057    (6,468)   (32.9%) 
03/12/02        6,400    13,070    (6,670)   (34.3%)
03/19/02        4,651    10,367    (5,716)   (38.1%)

Most bearish reading of the year:  (8,777) - 10/12/01
Most bullish reading of the year:   1,909  -  1/16/01

-----------------------------------------------------------------


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***************
ASK THE ANALYST
***************

EOQ
By Eric Utley

The quarter's end brings strange happenings to stock prices.
Those stocks that have performed poorly during the last three
months are often dumped in favor of those that have performed
well.  The short-term imbalances in supply and demand can
cause irrational price fluctuations that are, in turn,
exploitable by traders.  It's a game that should be played by
only the best of traders because of the internal risk factors
involved.

Here's a list of likely targets of quarter's end posturing:

                               QTD (%)

Gold Fields     (NASDAQ:GOLD)     104
Cymer           (NASDAQ:CYMI)      84
Expedia         (NASDAQ:EXPE)      68
Rent-A-Center   (NASDAQ:RCII)      51
P.F. Chang's    (NASDAQ:PFCB)      42

ImClone         (NASDAQ:IMCL)     -44
McData          (NASDAQ:MCDT)     -52
Genesis Micro   (NASDAQ:GNSS)     -58
Sprint PCS         (NYSE:PCS)     -58
Riverstone      (NASDAQ:RSTN)     -68

The point and figure charts that appear in this column were
created using www.StockCharts.com.

Please send your questions and suggestions to:

Contact Support 

----------------------------

Alaska Air Group (NYSE:ALK)

ALK just hit a 1 year high, but it's a 3X top.  With the
economy growing do you think this a safe med-T investment
(2 - 3 months)? - Tom

Thanks, Tom.

If we're going to investigate Alaska Air, then surely we
must first examine the broader Airline (XAL.X) industry.
After all, Alaska Air is a component of the XAL.  So by
using the XAL as a gauge for the broader business, we may
be able to apply our findings from the sector to the
individual stock.

Flying High

The XAL is better by about 19 percent year-to-date.  It's
hard to believe, but very true.  The sector is one of the
best performing so far this year.  With the exception of
the dramatic losses from operations recently reported, the
developments in the group have supported the rally from the
September lows.

Frontier Airlines (NASDAQ:FRNT) -- a regional player based
here in Denver -- continues to add new destinations and
increase frequency to existing destinations.  Others, such
as Southwest (NYSE:LUV), expect to add a significant number
of jobs this year as a continuation of their expansion
efforts.  And just last week, the Seattle-Tacoma Airport
reported that traffic had rebounded to near pre-September
levels.  You'll note, however, that the three aforementioned
airlines share a commonality: they're smaller, regional
carriers.

The majors have traded well, don't get me wrong.  But the
majors are the ones who've been reporting the historic
losses from operations.  That is, they continue to lose
money at a huge rate.  But that hasn't slowed the ascent of
the XAL.  

About two weeks ago, the index trade about two points away
from its pre-09/11 levels, which reflected the return of
traffic.  In the two weeks following the XAL's relative high
up around 115, the index pulled back to consolidate its
big first-quarter rally.  Last Thursday, it rebounded from
the psychologically significant century mark.

If I were looking for a bullish position in the XAL, I'd
actually like to see a little more downside work put in
before attempting a trade or investment.  In terms of
levels, I've been using the same retracement bracket for
months now, which is anchored at September 10's close and
the low traced later in that same month.  The XAL has been
tracking the levels fairly close and I think the levels make
sense for use in determining downside risk.  For example,
the 61.8 percent retracement level sits down around the 95
level, which may be a good spot to look for bullish plays.

XAL - Retracement and Trend Lines

 

In addition to the retracement bracket, I've used two major
trend lines on the above chart.  The red line is the long
standing bearish resistance line that was broken in early
March.  That could continue serving as support as it did
last Thursday.  Should the XAL slide down its previous
resistance line, it would be reinforced by the supporting
trend line coming off of the November and February lows.
When the two points converge could be a nice spot to enter
bullish plays with a stop at the 61.8 percent retracement
level.

Triple-Top Trouble

If ALK is going to breakout above the triple-top that Tom
alluded to, then it will obviously need the XAL to trade
higher.  In other words, ALK will need the airline business
to improve further in order to support a move above its
intermediate-term resistance at $33 to $34.

The retracement bracket that I've used on the ALK chart
below reinforces why the $33 level has served as such
meaningful resistance for more than a year.  I like this
bracket quite a bit for its tight fit to historic levels,
such as the lows in late 1998 and early 2000.  And
obviously the bumps against resistance at the 38.2 percent
level add credence.

ALK - Weekly Retracement

 

The question then becomes whether to buy a breakout or
wait for a pullback?  The answer is a matter of style and
risk preference.  If you think the airline business is
going to dramatically improve over the next two to three
months, then using the breakout above $34 as an action
point makes sense.  If, however, you think that the airline
business might gradually improve at a slow rate over the
intermediate-term, then it makes more sense to wait for a
level in ALK that holds less downside risk.  Using a
retreat in the XAL to its above mentioned support
possibilities would correspond with lower prices in ALK and
potentially less risk, thereby positioning ahead of the
ultimate breakout above the $34 level all the while with
less risk.

The point and figure chart reveals the same resistance level
that the retracement shows on the weekly chart.  There are
a couple of observations to take away from the PnF chart.
First, the current vertical count for ALK is 42.50.  There's
plenty of upside potential from current levels using that
number, which I think would make a good intermediate- to
long-term upside target.  Second, the closest support level
is down at $28.  Third, there's some serious congestion
between the $33 and $35 levels, but beyond that resistance
zone sits pretty easy prices.

ALK - Point and Figure

 

----------------------------

DISCLAIMER:
This column is an information service only.  The information
provided herein is not to be construed as an offer to buy or
sell securities of any kind.  The Ask the Analyst picks are not
to be considered a recommendation of any stock or option but an
information resource to aid the investor in making an informed
decision regarding trading in options.  It is possible at this
or some subsequent date, the editor and staff of The Option
Investor Newsletter may own, buy or sell securities presented.
All investors should consult a qualified professional before
trading in any security.  The information provided has been
obtained from sources deemed reliable, but is not guaranteed
as to its accuracy.






*************
COMING EVENTS
*************

Monday, 03/25/02
Existing Home Sales (DM))Feb  Forecast:  5.50M  Previous:   6.04M

Tuesday, 03/26/02
Durable Orders (BB)      Feb  Forecast:   1.0%  Previous:    2.6%
Consumer Confidence (DM) Mar  Forecast:   98.0  Previous:    94.1

Wednesday, 03/27/02
New Home Sales (DM)      Feb  Forecast:   880K  Previous:    823K

Thursday, 03/28/02
Initial Claims (BB)    03/23  Forecast:   375K  Previous:    371K
GDP-Final (BB)            Q4  Forecast:   1.4%  Previous:    1.4%
Chain Deflator-Final (BB) Q4  Forecast:  -0.2%  Previous:   -0.2%
Mich Sentiment-Rev. (DM) Mar  Forecast:   95.0  Previous:    95.0
Chicago PMI (ISM) (DM)   Mar  Forecast:   54.0  Previous:    53.1
Help Wanted Index (DM)   Feb  Forecast:    N/A  Previous:      47

Friday, 03/29/02
Personal Income (BB)     Feb  Forecast:   0.2%  Previous:    0.4%
Personal Spending (BB)   Feb  Forecast:   0.4%  Previous:    0.4%

Definitions:
DM=  During the Market
BB=  Before the Bell
AB=  After the Bell
NA=  Not Available


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The Option Investor Newsletter                   Sunday 03-24-2002
Sunday                                                      2 of 5


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**********************
INDEX TRADER GAMEPLANS
**********************

Index Trader Swing-Trade Game Plan: Saturday 03/23/2002 
Rocky Ride Still Ahead

News & Notes: 
From Thursday’s Summation: “All charts suggest we go lower again 
tomorrow, but today's bullish close and Friday's pattern of green 
cannot be ignored. Call players be careful and use these clear 
measures of resistance / support to stay above. Odds favor puts 
below resistance if chart signals roll down from overbought 
zones, which is the way I'd play options on Friday.” 

Pretty much just what happened, save a counter-trend rally during 
the lunchtime lull that made put plays a tough proposition. 
Relatively small range day compared to what we’ve seen, and 
Monday points to a lower open. Let’s see what may happen from 
there:


Featured Markets: 
[60/30-Min Chart: OEX] 


 

Stochastic values on weekly/daily charts (not shown) are still 
descending in bearish fashion. We have intraday charts still 
bearish across the spectrum as well. Price action remains trapped 
in a descending channel while forming brief consolidations that 
suggest an upside pop is near. I would not fade the W/D charts 
and play call options myself, instead preferring to see what 
happens near lines of resistance for put play potential instead.

[60/30-Min Chart: SPX] 



 

Likewise SPX, as always. A different view for this 30-min chart 
gives us one more set of pivot lines to watch as well. I will 
only play put options on further downside moves and not calls for 
upside plays due to wide bid/ask spreads when fading the W/D 
“trend”.

[60/30-Min Chart: QQQ] 



 

QQQs are the same... poised to try an upside pop but bias remains 
lower on W/D charts. Call options here make sense with tiny 
bid/ask spread and only sector charts looking somewhat bullish 
are tech related.


Summation:
We could see market action in both directions this week, but what 
else is new? Above are the clear pivot points to stay long above 
or short below as personal choice dictates. I’d play any puts or 
QQQ calls if using options and be prepared for continued intraday 
volatility ahead. Downside gets the technical nod, upside has 
fundamental bias so let’s be careful out there!


Trade Management: 
Option traders may choose listed In-The-Money (ITM) or Out-The- 
Money (OTM) contracts by personal preference. They are selected 
based on volume, open interest and "Delta" values in that order. 
Our preference is usually OTM contracts except for the last few 
days of expiration when ATM or ITM contracts are preferred. 

Entry triggers are points where plays are tracked when price 
action breaks above for calls or below for puts. Stops are the 
exact opposite of that. Sell targets are points to exit based on 
index levels or %gain on option contract price as noted. 

*No entry targets listed mean the models are idle at that time. 
New Play Targets:


         QQQ                                DJX
Apr Calls: 38 (QQQ-DL)            Apr Calls: 106 (DJV-DB)  
Long: BREAK ABOVE none            Long: BREAK ABOVE none
Stop: Break Below                 Stop: Break Below 
                                

Apr Puts: 37 (QQQ-PK)             Apr Puts: 105 (DJV-PA) 
Long: BREAK BELOW none            Long: BREAK BELOW none
Stop: Break Above                 Stop: Break above 


         OEX                                SPX
Apr Calls: 600 (OEY-DT)           Apr Calls: 1175 (SPT-DO)
Long: BREAK ABOVE none            Long: BREAK ABOVE none
Stop: Break Below                 Stop: Break Below 


Apr Puts: 590 (OEB-PR)            Apr Puts: 1150 (SPT-PJ)
Long: BREAK BELOW none            Long: BREAK BELOW none
Stop: Break Above                 Stop: Break Above 


Open Plays:
None



Index Trader Sector-Trade Game Plan: Saturday 03/23/2002 
Majority Vote Is Lower

News & Notes: 
Our Weekly/Daily chart scan of all tradable indexes and sectors 
shows a majority in bearish reversal fashion right now. Charts 
posted in the weekend Index Wrap summarize what we see.
Featured Plays: 
Index Wrap
Summation: 
A slew of short listings to cross-compare stock holdings in these 
various sectors. Scares us a little to hear the masses expecting 
each dip to explode upward into month-end manipulation but 
technicals say otherwise. We must trust the charts but do so with 
prudence knowing greater odds DO NOT equate to sure-thing trades 
now or ever!
Trade Management: 
Entry triggers are points where plays are tracked when price 
action breaks above for calls or below for puts. Stops are the 
exact opposite of that. Sell targets are points to exit based on 
index levels or %gain on share price as noted. 
No entry targets listed mean the model is idle at that time. 
Asterisk means stop-loss level changed since prior posting 

New Play Targets:
QQQ **          SMH **          BBH **         
Short: 36.60    Short: 46.25    Short: 126.25  
Stop:  37.50    Stop:  26.75    Stop:  130.00

OIH **          MKH **          RTH **         
Short: 65.50    Short: 58.50    Short: 100.00  
Stop:  69.00    Stop:  61.50    Stop:  104.00 

TTH **          FFF **          IWD         
Short: 38.50    Short: 82.25    Short: 57.50 
Stop:  41.00    Stop:  86.00    Stop:  60.00

IWM             IWS             IYC         
Short: 99.75    Short: 60.40    Short: 57.00 
Stop: 104.00    Stop:  63.50    Stop:  59.50

IWW             IYY             IVE         
Short: 73.70    Short: 53.00    Short: 55.50 
Stop:  77.00    Stop:  56.00    Stop:  58.00

XLE              IYM            XNG (options only)
Short: 28.40     Short: 41.50   Short: 193.25
Stop:  31.00     Stop:  43.50   Stop:  203.00


Open Long Plays:
None 


Open Short Plays:
XLB **          XLP **          
Short: 23.75    Short: 26.00    
Stop:  24.50    Stop:  26.75    

XLV **          XLY **          
Short: 29.00    Short: 29.90    
Stop:  30.25    Stop:  31.00    

IYD             IYK             
Short: 45.25    Short: 45.90    
Stop:  47.00    Stop:  47.00    

IYR             IYE
Short: 84.75    Short:  49.70
Stop:  86.00    Stop:   52.00

RTH **          IJJ
Short: 98.00    Short:  97.00
Stop: 102.00    Stop:   99.00

DIA **[DJX]     IYM
Short: 105.90   Short: 42.00 
Stop:  105.90   Stop:  43.00












***********************************************************
DAILY RESULTS
***********************************************************

CALLS              Mon    Tue    Wed    Thu   Week

ACS      54.83    3.71  -0.75   0.35  -0.79   1.79  Dropped, stop
BAC      68.65   -0.37   0.05  -1.02   0.16  -0.53  Strong bank
IDPH     69.20    1.03  -0.62  -2.72   2.54  -0.73  BTK pulled back
CEPH     68.00    0.83  -0.36  -1.70   1.55   0.63  Best bio stock
GENZ     51.80    0.91  -0.38  -1.03   1.32   1.79  200-dma test
COF      63.37    0.43   1.33  -1.66   0.12   1.32  Gained strength
EOG      40.16    0.53   0.89  -0.33   0.72   0.91  10-dma support
EXPE     68.37    2.55   0.43   1.59   1.01   3.44  Ticking higher
TXN      33.16   -0.09   0.57  -1.07   0.66  -0.93  Waits on SOX.X
KLAC     65.25    0.37   0.91  -1.82   1.05  -0.24  Chip leader
CAH      70.05    0.84  -0.35  -0.55   0.85   0.99  New, running
ROOM     69.00    3.63   1.00   0.01  -0.27   4.73  New, performer


PUTS

RYL      89.32   -1.63   1.35  -3.81   0.48   0.62  Dropped, relief
ISSX     25.89    0.34  -0.55  -2.13   1.46  -2.31  Ready to break
MIL      44.86   -0.41  -1.24   0.10   0.08  -1.61  Breaking down
GDW      62.47   -0.70  -1.38  -1.54  -0.17  -3.33  Losing ground
TMPW     32.99    1.11   0.62  -2.69   0.29  -2.14  New, sell
FLIR     44.69    1.85   1.63  -4.95   2.15  -1.28  New, broken
EMLX     31.55   -1.34   1.92   0.28   2.20   2.67  New, shorts


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********************
THE PLAYS OF THE DAY
********************

Call Play of the Day:
*********************

CAH - Cardinal Health $70.05 (+0.99 last week)

See details in play list




Put Play of the Day:
********************

TMPW - TMP Worldwide $33.03 (-2.10 last week)

See details in play list





**************************
PICKS WE DROPPED THIS WEEK
**************************

Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


CALLS
^^^^^
ACS $54.83 (+1.79) It looks like the party is over for traders
of ACS.  The stock has given us a nice little ride up the charts
over the past couple weeks, but the latest round of
consolidation appears to be taking too much wind out of the
buyers' sails.  Even though the stock closed above our $54.50
stop on Friday, the intraday dip below that level shows that the
stock's strength is waning.  Like we mentioned on Thursday, a
drop into that gap we were rewarded with on Monday will likely
mean the gap is going to be filled.  We don't want to wait for
that to happen while our gains dwindle, so we're locking them in
now.  Use any strength on Monday to exit at a better price.


PUTS
^^^^
RYL $89.32 (+0.62) There's no denying the weakness we've seen in
housing stocks over the past couple weeks, and RYL has been
leading the way down, at least until Friday's session that is.
Thursday's doji reflected the indecision in the stock and on
Friday buyers (or shorts covering) went on a tear, allowing the
stock to rise nearly 5% on heavy volume.  Our stop is still
intact at $89.50 and there is a fair amount of resistance near
$90, but we'll err on the side of caution and harvest our gains
here.  If the housing stocks continue to look weak down the road,
it's a safe bet that we'll be seeing RYL in the put list again.


***********
DEFINITIONS
***********

SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.

RISKS of SELLING PUTS:
The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.




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The Option Investor Newsletter                   Sunday 03-24-2002
Sunday                                                      3 of 5


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**************
NEW CALL PLAYS
**************

CAH - Cardinal Health $70.05 (+0.99 last week)

Cardinal Health, Inc. is a provider of products and services to
healthcare providers and manufacturers, helping them improve the
efficiency and quality of their healthcare services and products.
Cardinal Health has four reporting segments: Pharmaceutical
Distribution and Provider Services, Medical-Surgical Products
and Services, Pharmaceutical Technologies and Services, and
Automation and Information Services. 

Despite the recent problems among the major drug makers, shares
of diversified health care firms have been acting healthy.  The
momentum appears to be building within the group.  Prudential
Securities brought the group into focus recently with its
initiating of coverage on several companies within the group
with an investment rating of buy.  Prudential's note focused on
D&K Healthcare Resources (NASDAQ:DKWD), McKesson (NYSE:MCK),
AmerisourceBergen (NYSE:ABC), and Cardinal Health (NYSE:CAH).
The premise of the buy rating on these stocks was solid
profitability, improving industry fundamentals, consistent
annual earnings growth, and relative safety.  One of the
leaders in the group, CAH, Prudential set a price target of
$83 for the stock based on the company's strong growth
prospects.  The market seemed to agree with the analysts'
prognosis as CAH recently broke out above a critical resistance
level.  Last week saw the stock continue higher following its
breakout, but most of the stock's move came in the early part
of last week's trading.  As the week wore on, CAH spent most
of its time trading sideways, ending the week with a modest
$1 gain, but that gain did manage to best the performance of
the broader stock measures.  The relative reliability and
stability of CAH's earnings is beginning to attract investors
who should continue carrying the stock higher into next
week's trading.  Traders looking for a breakout entry can use
an advance past the $71 level as such.  Those who'd rather
wait for a pullback can do so near the 200-dma at the $69.12
level.  Our stop is initially in place at $68.

BUY CALL APR-65 CAH-DM OI= 301 at $5.80 SL=3.50 
BUY CALL APR-70*CAH-DN OI=1478 at $2.10 SL=1.00 
BUY CALL MAY-70 CAH-EN OI=  63 at $3.10 SL=1.75 
BUY CALL MAY-75 CAH-EO OI= 370 at $1.10 SL=0.75 

Average Daily Volume = 3.03 mln



ROOM - Hotel Reservations Network $69.00 (+3.73 last week)

Hotel Reservations Network, Inc. is a consolidator of hotel and
other lodging accommodations. The Company contracts with lodging
properties in advance for volume purchases and guaranteed
availability of rooms at wholesale prices, and sells these rooms
to consumers often at significant discounts to published rates.
The Company's supply relationships also often allow it to offer
customers accommodation alternatives for otherwise unavailable
dates.

The online travel business is booming.  Just take a look at
shares of some of the leading players in the business.  Option
Investor recently added Expedia (NASDAQ:EXPE) to the call
play list as the stock continues to trace new all-time highs.
Hotel Reservations Ntwk is another stock in the group that
continues to trade with incredible strength and consistency.
the company operates a network of hotel and general lodging
properties, putting it in the middle of the travel rebound.
The company has taken strides to align itself with others
in the business, such as airlines, in an attempt to further
boost sales and profits.  The analyst community is jumping
on the momentum.  Just last Friday, Pacific Crest securities
raised its price target on ROOM to $96.  Pacific Crest also
opined that ROOM as in the early stages of a two year
cycle that will drive the company's sales growth profit
potential.  The prospects for a rebounding economy will
only add to the upside potential for this company and its
stock price.  Aggressive traders can look to begin entering
new call plays early next week on an advance past the $70
level.  Confirmation would be provided on a rally above the
$71 level going into next week's trading.  Because of the
stock's stellar performance and lofty price, it could be a
target for end of the quarter window dressing through next
week, which would add to the upside potential in short term
plays.  Those looking for intraday pullbacks can start to
focus on the $66 to $67 levels for rebound points.  Our
stop is initially in place at the $65 level.

BUY CALL APR-65 URD-DM OI=238 at $6.70 SL=4.50 
BUY CALL APR-70*URD-DN OI=294 at $4.00 SL=2.00 
BUY CALL MAY-65 URD-EM OI=  0 at $8.60 SL=6.00 
BUY CALL MAY-70 URD-EN OI=  0 at $6.10 SL=4.75 

Average Daily Volume = 1.80 mln



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******************
CURRENT CALL PLAYS
******************


IDPH - IDEC Pharmaceuticals $69.20 (-0.73 last week)

IDEC Pharmaceuticals Corporation is a biopharmaceutical company
engaged primarily in the research, development and
commercialization of targeted therapies for the treatment of
cancer and autoimmune and inflammatory diseases. The company's
first commercial product, Rituxan, and its most advanced product
candidate, ZEVALIN (ibritumomab tiuxetan), are for use or
intended for use in the treatment of certain B-cell non-Hodgkin's
lymphomas (B-cell NHLs). 

IDPH traced a slightly higher high in last Friday's session from
its rebound in last Thursday's trading.  The stock continued
higher along with the broader market and the AMEX Biotechnology
Sector Index (BTK.X), but was unable to continue along its
rebound path because of the weakness in the broader market.  The
consolidation that we've been anticipating the biotech sector
may actually come into play during next week's trading, taking our
cue from the failure of the sector to move higher in last Friday's
session.  The rebound from Thursday had the potential to push
IDPH above its short term resistance levels, but because it failed
in Friday's session, we may need more time to digest the recent
rally before the breakout is realized.  But some consolidation
over the next few sessions wouldn't necessarily be a bad thing
as long as IDPH holds its pattern or relatively higher lows.  That
means on any pullback next week, IDPH needs to hold above the
$66.75 level.  We'd also like to see volume pullback in
conjunction with weakness in price.  Such a development would be
indicative of profit taking and normal consolidation and could
eventually lead to the breakout that we've been looking for.
Pullbacks next week between the $67 and $68 levels can be used to
gain entry points into new positions.  Remember that if the stock
closes below the $67 level, which is the current site of our
protective stop, then we'll drop coverage.  Continue to monitor
the BTK.X for help when trading IDPH.

BUY CALL APR-60 IHD-DL OI=1479 at $10.70 SL=9.00 
BUY CALL APR-65*IHD-DM OI=3461 at $ 6.60 SL=5.00 
BUY CALL APR-70 IHD-DN OI=6513 at $ 3.40 SL=2.00 
BUY CALL JUL-65 IHD-GM OI=2606 at $10.90 SL=9.25 
BUY CALL JUL-70 IHD-GN OI=2390 at $ 7.60 SL=6.00 

Average Daily Volume = 3.65 mln
 


CEPH - Cephalon $68.00 (+0.63 last week)

Cephalon, Inc. is an international biopharmaceutical company
focused on the discovery, development and marketing of products
to treat sleep disorders, neurological disorders, cancer and
pain. In the United States, the Company markets three products,
Provigil (modafinil) Tablets [C-IV] for treating excessive
daytime sleepiness associated with narcolepsy, Actiq (oral
transmucosal fentanyl citrate) [C-II] for the management of
cancer pain in opioid tolerant patients, and Gabitril
(tiagabine hydrochloride) for the treatment of partial
seizures associated with epilepsy.

CEPH gained a good amount of relative strength in last Friday's
session when the stock finished fractionally higher.  By
comparison, its sector, the Biotechnology Sector Index ($BTK),
finished more than 1% lower.  While CEPH's 0.45% gain may not
have seemed like a lot last Friday, it was actually a very
good day for the stock in relation to its sector performance.
It's good to know that we're in one of the strongest stocks
in the broader biotech sector, but that alone may not be enough
to make this play successful.  What we really need is for the
BTK to continue along its path of higher highs, which would
allow CEPH to breakout above its short term resistance, which
appears to have formed at the $69 level.  We saw again in last
Friday's session that CEPH rolled over right below the $69
level.  It's hard to determine whether or not that shorts are
leaning on CEPH just below the $69 level or whether the bulls
are taking profits at the $69 level.  Either way, if we see
the breakout above the $69 level in an advancing market and
sector, then we should witness CEPH continue into the $70
range that we've been targeting all along.  However, further
weakness in the BTK should prevent CEPH from breaking out.
Therefore, the key in this play is closely monitoring the
price action in the BTK and taking your cues in CEPH from the
sector price action.  If the BTK does trade lower in next
week's trading, then look for a pullback down into the short
term support area at the $66 level.

BUY CALL APR-65 CQE-DM OI=2793 at $5.60 SL=4.25 
BUY CALL APR-70*CQE-DN OI=3903 at $2.65 SL=1.25 
BUY CALL MAY-65 CQE-EM OI= 705 at $7.30 SL=5.50 
BUY CALL MAY-70 CQE-EN OI=2258 at $4.40 SL=3.00 

Average Daily Volume = 2.43 mln



COF - Capital One Financial $63.37 (+1.32 this week)

Capital One Financial Corporation is a holding company whose
subsidiaries provide a variety of products and services to
consumers using its proprietary information-based strategy. The
Company's principal subsidiary, Capital One Bank, a limited
purpose credit card bank, offers credit card products. Capital
One, F.S.B., a federally chartered savings bank, offers consumer
lending and deposit products.  

The relative strength that we saw COF display in last Thursday's
session, albeit small relative strength, followed through in a
very big way into last Friday's session.  The stock out paced
the major financial sector indexes, including the KBW Bank
Sector Index (BKX.X) and the AMEX Securities Broker/Dealer Index
(XBD.X).  As we've written before, COF is not a component of
either index, but the stock does tend to track the broader
financial measures for obvious reasons.  The out performance was
most positive to witness again in last Friday's session, which
saw COF continue after its rebound above the 10-dma in last
Thursday's session.  The next major resistance level in the way
of COF's ascent is at the $65 level.  In a favorable market with
the financial measures participating, COF should be able to
breakout above that resistance level and continue higher over
the short term.  Traders can choose to use a breakout above the
$65 level as an entry point with the understanding that such a
move may carry more risk and less upside than an entry pursued
during intraday weakness or near support.  If COF does breakout
above the $65 level, then we'll use the $67 level, which is only
two points away from the short term resistance, as the potential
upside target.  That's why we prefer entering on weakness ahead
of a potential breakout, which would reduce risk and increase the
potential upside.  The key for entering on weakness if finding a
good support level where the stock is likely to rebound from.  The
10-dma, now just below the $62 level, could be used as such an
entry point during intraday weakness.  

BUY CALL APR-60*COF-DL OI=4210 at $4.90 SL=2.50 
BUY CALL APR-65 COF-DN OI=3467 at $1.95 SL=1.00 
BUY CALL JUN-65 COF-FM OI=1379 at $4.60 SL=2.00 
BUY CALL JUN-70 COF-FN OI=1332 at $2.70 SL=1.75 

Average Daily Volume = 3.03 mln



EXPE - Expedia $68.37 (+3.44 last week)

Expedia, Inc. is a provider of branded online travel services for
leisure and small business travelers. The Company operates full
service travel agency Websites targeted at customers in a number
of geographies. The Company operates Expedia.com in the United
States; Expedia.co.uk in the United Kingdom; Expedia.de in
Germany; and Expedia.ca in Canada.

The increasingly complex demands from travelers coupled with a
move by the major carriers to severe ties with travel agents
have put the online travel agencies in the sweet spot of a
rebounding industry.  The travel industry was obviously adversely
impacted by the events of September 11, but was one of the first
businesses to rebound, and rebound big!  Expedia epitomizes the
sweet spot that has become the online travel business as the
company continues to expand, take market share, and strike major
deals with airlines.  While a pricey stock, Expedia's growth
prospects have attracted the aggressive buyers, who continue to
push shares higher.  In the very short-term, it's that recent
performance that we're concerned with.  The stock is one of the
better high-profile performers among Nasdaq listed stocks, making
it a prime target for end of the quarter window dressing -- the
practice by money managers to boost the price of core holdings
in an attempt to increase performance.  We saw some of that
buying in last Friday's session earlier in the day, when the
market was trading higher.  That could be the biggest variable
in this play: the market.  What we saw last Friday could continue
playing out into next week's trading.  In a favorable bullish
market, EXPE will most likely continue higher into next week.
But weakness could stall the stock as the end-of-month buyers
may not have enough power to overcome weakness in the broader
market.  That being the case, traders are still better off looking
to intraday weakness at short term support levels for entry
points.  The $67 area supported the stock last Friday, which
may continue to do so into next week's trading.  If the stock
falls under heavier selling pressure, a rebound from the $66 mark
could produce a good entry point.  To the upside, $70 could serve
as resistance in the short term, where a breakout above could
lead to a move higher by two or three points.

BUY CALL APR-65 UED-DM OI= 143 at $6.10 SL=4.75 
BUY CALL APR-70*UED-DN OI=1778 at $3.10 SL=1.50 
BUY CALL APR-75 UED-DO OI= 139 at $1.45 SL=0.50  Aggressive!! 
BUY CALL MAY-70 UED-EN OI=  21 at $4.70 SL=2.50 

Average Daily Volume = 715 K



BAC - Bank of America Corp. $68.65 (-0.53 last week)

Providing a diversified range of banking and certain
non-banking financial products and services, BAC's operations
consist of Consumer Banking, Commercial Banking, Global
Corporate and Investment Banking, and Principal Investing and
Asset Management.  Consumer Banking targets individuals and
small businesses, while Commercial Banking targets businesses
with annual revenues up to $500 million.  Global Corporate
and Investment Banking provides investment banking, trade
finance, treasury management, leasing and financial advisory
services.  Principal Investing includes direct equity
investments in businesses and general partnership funds, while
the Asset Management businesses are split into three branches;
Private Bank, Banc of America Capital Management and Banc of
America Investment Services.

Despite a volatile week in the broad markets, the Banking sector
(BIX.X) has been holding up well, managing a decent rebound off
the lows on Thursday to close out the week just above the $900
level.  Bullish traders are looking for the BIX and the broader
Financial sector to continue higher as proof that this mini-bull
market actually has legs.  Shares of BAC had a rather quiet week,
remaining trapped between the $67.50 level on the downside and
$69.50 on the upper end.  This range is likely to break in the
week ahead, and when it does, we'll get the answer as to the
strength of both the banking group and the broader market.  Our
action plan remains essentially unchanged for the play, as we
want to take advantage to dips and bounces in the vicinity of
$67.50 support to initiate new positions.  Trading the breakout
over the $69.50 level may work as well, but it is harder to manage
risk when trading breakouts in a stock that appears to be losing
momentum.  Buy the dips for the best entry points and only trade
the breakout if it comes on strong volume.  Keep stops at $66.75.

BUY CALL APR-65 BAC-DM OI=10636 at $4.50 SL=2.75
BUY CALL APR-70*BAC-DN OI=14277 at $1.15 SL=0.50
BUY CALL MAY-70 BAC-EN OI=27601 at $2.05 SL=1.00
BUY CALL MAY-75 BAC-EO OI=11771 at $0.50 SL=0.25

Average Daily Volume = 5.75 mln


EOG - EOG Resources, Inc. $40.16 (+0.91 last week)

EOG Resources explores for, develops, produces and markets
natural gas and crude oil primarily in producing basins in the
United States, as well as in Canada and Trinidad.  EOG's
operations are all natural gas and crude oil exploration and
production related.  The company's North American operations
are divided into eight autonomous divisions, organized by
geographical region; Midland, Texas; Denver Colorado; Tyler
Texas; Corpus Christi, Texas; Mid-Continent; Pittsburgh,
Pennsylvania; Calgary Canada and the Houston, Texas/Offshore
Division.

After staging a solid breakout over the $192 level earlier in
the week and then clearing the 200-dma, the Natural Gas index
(XNG.X) suffered a bout of profit taking on Friday, opening at
the high and closing at the low.  Coming to rest just above the
converged 10-dma ($192.78) and 200-dma ($192.94), the XNG will
need to see some bullish conviction to defend the $192 level as
new-found support.  One factor that likely contributed to the
profit taking on Friday was the weakness in the price of the
June Natural Gas contract (NG02M), but this just looks like
normal profit taking, since both the XNG index and NG02M are
holding above their respective 200-dmas.  The reason we focus so
much on the sector and commodity for this play is that EOG is a
pure-play in the Oil and Gas sector.  As goes the sector, so goes
the stock.  Sure enough, after the breakout over the $40 level
earlier in the week, EOG is consolidating above the $40 level,
testing it as support each of the past 3 days.  We're looking at
these dips at support as attractive entry points, but wouldn't
rule out a brief dip near the $39.50 level before the bulls are
convinced to start buying again.  Confirm strength in both the
XNG and the futures contract before playing.  Keep stops set
at $39.

BUY CALL APR-40*EOG-DH OI=1411 at $1.65 SL=0.75
BUY CALL APR-45 EOG-DI OI= 292 at $0.25 SL=0.00
BUY CALL MAY-40 EOG-EH OI=  95 at $2.40 SL=1.25
BUY CALL MAY-45 EOG-EI OI= 104 at $0.65 SL=0.25
BUY CALL JUL-45 EOG-GI OI= 816 at $1.40 SL=0.75

Average Daily Volume = 1.05 mln


GENZ - Genzyme General $51.80 (+1.79 last week)

Genzyme General, a division of Genzyme Corporation, is focused
on developing innovative products and services to solve major
unmet medical needs.  GENZ has nearly 600 products and services
on the  market and a strong pipeline of therapeutic products for
the treatment of rare genetic diseases.  The Diagnostics
business unit develops, markets and distributes in vitro
diagnostic products and genetic testing services. With a solid,
profitable revenue base, this research is intended to maintain
the company’s high rate of earnings growth.

Even though there was a bit of weakness seen in the Biotechnology
sector (BTK.X) on Friday, it is hard to argue with the strength
this group has been showing since confirming its lows near the
$455 level n early March.  Resistance is being found at the 50%
retracement of the December-January decline ($537), with
additional resistance being created by the 200-dma at $536.  But
once clear of that obstacle, the BTK should work up to the next
level of resistance near $558, the site of the 62% retracement. 
Despite the weakness seen in the broader sector, shares of GENZ
are looking particularly healthy and managed to post yet another
gain on Friday.  Just kissing the 200-dma ($52.17) on Friday, the
stock still managed to post its highest close since the middle of
January and has just pushed through the bearish resistance line
with the strength over the past week.  The PnF chart is
forecasting a price rise to the $71 level, so you can see that we
are in the early stages of the move.  And with the profit taking
early in the week, the overbought condition has been relieved
enough to give the bulls a shot at breaking through the 200-dma
and challenging the next level of resistance near $54-55.
Thursday's dip near the $49 level provided a great entry, and we
want to continue to use intraday dips to establish new positions.
Look for a retracement near the $50 level to provide entry, or
else wait to enter on a breakout over the $52.25 level.  We're
moving our stop up to $49 this weekend.

BUY CALL APR-50*GZQ-DJ OI=3254 at $3.70 SL=2.25
BUY CALL APR-55 GZQ-DK OI=2569 at $1.15 SL=0.50
BUY CALL MAY-50 GZQ-EJ OI=  45 at $4.80 SL=3.00
BUY CALL MAY-55 GZQ-EK OI= 201 at $2.10 SL=1.00

Average Daily Volume = 4.60 mln


KLAC - KLA-Tencor Corporation $65.26 (-0.23 last week)

KLA-Tencor is a supplier of process control and yield management
solutions for the semiconductor and related microelectronics
industries.  The company's comprehensive portfolio of products,
software, analysis, services and expertise id designed to help
integrated circuit manufacturers manage yield throughout the
entire wafer fabrication process, from research and development
to final mass production yield analysis.  The company offers a
broad spectrum of products and services that are used by every
major semiconductor manufacturer in the world.  These customers
turn to KLAC for in-line wafer defect monitorin, reticle and
photomask defect inspection, CD SEM metrology, wafer overlay,
film and surface measurement and overall yield and fab-wide
data analysis.

Despite the positive news out of Chip companies on Thursday
night, the Semiconductor index (SOX.X) couldn't seem to make
any positive headway on Friday amid the broad market weakness.
The SOX finished just over 1% lower for the day, and that
weakness is setting the stage for us to gain an attractive entry
into our KLAC play.  If the rebound in the Semiconductor
industry is truly upon us, it should be led by the companies at
the lower end of the food chain, namely the chip equipment names
like KLAC and AMAT.  Despite its rather volatile path, KLAC is
up more than 30% year-to-date, and that should make it
attractive to fund managers that are attempting to improve the
appearance of their funds ahead of the end of the quarter.  KLAC
has been riding a solid bullish trend higher since the middle of
January, and the trendline connecting the higher lows since then
is currently resting at $63, coincidentally the level where the
stock found support just over a week ago.  We continue to believe
that if you want to play the bullish trend in volatile stocks
like KLAC, the best entry points will be achieved by target
shooting the intraday dips to support.  Consider new entries near
the $64.50 level (also the site of the 20-dma), or else look for
another rebound off the $63 level.  We have our stop set at
$62.75.

BUY CALL APR-65*CKV-DM OI=5436 at $3.80 SL=2.25
BUY CALL APR-70 CKV-DN OI=6982 at $1.50 SL=0.75
BUY CALL MAY-65 CKV-EM OI=  60 at $5.80 SL=3.75
BUY CALL MAY-70 CKV-EN OI= 180 at $3.30 SL=1.75
BUY CALL MAY-75 CKV-EO OI= 149 at $1.80 SL=1.00

Average Daily Volume = 9.55 mln


TXN - Texas Instruments $33.16 (-0.93 last week)

How about Semiconductors R Us?  TXN has broad-based exposure
to the semiconductor market, especially in digital signal
processors and analog integrated circuits.  TXN's products are
used in a diverse range of electronic systems, including
digital cell phones, computers, printers, hard disk drives,
networking equipment, and digital cameras.  TXN also supplies
electronic controls equipment, sensors, radio-frequency
identification systems, and sophisticated graphing
calculators.

While there was a fair amount of positive news in the
Semiconductor arena Thursday night in the form of MU's earnings
and a stock split announcement from AMAT, it wasn't enough to
keep the bulls interested on Friday in the midst of an uncertain
broader market.  The SOX finished in the red, but the damage
wasn't too bad at only a bit more than 1%.  The big question is
whether chip bulls will come back with a fresh appetite as we
head into the final week of the quarter.  There will likely be
some window-dressing shenanigans as usual, and we're going to be
looking for that to give us a solid entry in our TXN play.
Friday's session left the stock resting right on its 20-dma
($33.07) and this is interesting because of the stock's recent
behavior.  Over the past month, TXN has violated the 20-dma
several times, but each time it has found support and bounced
strongly from the ascending trendline that currently rests near
the $32 level.  So look for the stock to either bounce from the
20-dma (possible support) or else the $32 level to provide
entries into the play.  If the trendline fails to provide
support, then we'll know we had it wrong, hence we have a tight
stop in place at $31.75.

BUY CALL APR-32*TXN-DZ OI=13378 at $2.25 SL=1.00
BUY CALL APR-35 TXN-DG OI=32729 at $1.10 SL=0.50
BUY CALL APR-37 TXN-DU OI=10036 at $0.40 SL=0.00
BUY CALL MAY-35 TXN-EG OI=  773 at $1.75 SL=1.00
BUY CALL MAY-37 TXN-EU OI=  480 at $0.95 SL=0.50

Average Daily Volume = 10.5 mln



*************
NEW PUT PLAYS
*************

EMLX - Emulex Corporation $31.55 (+3.67 last week)

A leading networking company, EMLX designs, builds and
distributes three types of connectivity products: network
access servers, printer servers, and high-speed fibre channel
products.  It's fibre channel products, which are based on
internally developed ASIC technology, are deployable across
a variety of network configurations and operating systems to
support increasing volumes of stored data.  EMLX sells its
products directly throughout the world to OEMs and end users,
as well as through system integrators and industrial
distributors.

Sometimes a play treats you so well the first time around, that
you decide it warrants another helping.  With the recent weakness
in the Storage-related stocks, that area of the market continues
to look like a pleasant playground for the bears.  Shares of EMLX
have been trapped in a descending trend since early February, and
the trendline connecting those lower highs was almost reached on
Friday before the selling party started again.  The trendline is
currently sitting at $33.50, but buyers ran out of steam when
EMLX briefly crested the $33 level.  The sharp pullback from the
38% retracement (of the fall rally), which sits at $32.50,
indicates that this will be a tough level of resistance going
forward.  The short covering bounce over the past few days has
lifted the daily Stochastics well out of oversold territory, and
if Friday's afternoon weakness persists into next week, then we
should soon see the stock testing the 50% retracement level near
$28.  While another failed rally just below the trendline would
make for the best entry, we have to remain flexible in case the
stock just rolls over from here.  On continued weakness, look to
enter new positions on a volume-backed drop below the $30.75
intraday resistance level.  Areas of recent support that could
potentially spark a bounce are $29, $28 and $26.50.  We are
initiating coverage of EMLX with our stop set at $34.

BUY PUT APR-32 UMQ-PZ OI=2976 at $3.20 SL=1.50
BUY PUT APR-30*UMQ-PF OI=3509 at $2.00 SL=1.00
BUY PUT APR-27 UMQ-PY OI=1021 at $1.10 SL=0.50

Average Daily Volume = 9.66 mln


FLIR - FLIR Systems $44.69 (-1.28 last week)

FLIR is engaged in the design, manufacture and marketing of
thermal imaging and stabilized camera systems for a wide variety
of commercial, industrial and government applications.  The
company's products are divided into two categories, which
include the thermography products and imaging products.  In the
Thermography division, FLIR manufactures products that are sold
to commercial, industrial, research and machine vision customers.
For industrial customers, FLIR has developed thermography
systems that feature accurate temperature measurement, storage
and analysis.  The Imaging division caters to military, law
enforcement, surveillance and security customers.

Being the hot stock of last year (or even last month) carries
little cache in the current market, especially with end-of-quarter
window dressing looming next week.  Defense stocks were the place
to be until just recently, but judging by the weakening in the
Defense index (DFI.X), that relative strength may be waning.
After riding up the rally in the DFI index, shares of FLIR seemed
to stall and run out of steam near the $60 level, and the fall
from grace over the past 2 weeks has not been pleasant for the
bulls.  Specifically, FLIR has lost nearly $12 in that time and
judging by the recent action, the decline isn't over yet.  After
the big gap down on March 15th, prompted by news that the SEC will
bring a civil injunctive case against the firm for events that
occurred in 1998 and 1999.  The stock bounced somewhat off the
lows due to analyst pronouncements that the sharp decline was an
over-reaction to news that does not materially affect the company
presently.  But despite FLIR reaffirmation of earnings estimates,
the relief bounce ended quickly and the stock is now back below
firm resistance at $47.50.  It appears destined to test the $40
level next, and quite possibly the $35-37 area, where, the 200-dma
is waiting to offer somewhat stronger support.  Use another failed
rally near the $47-48 area to initiate new positions, or else wait
for a drop below the $44 level on strong volume.  Note that FLIR
bounced from the $42 level back on March 15th, so that is a
possibility when that level is reached again.  We're initiating
the play with our stop set at $48.50.

BUY PUT APR-45*FFQ-PI OI=242 at $3.70 SL=2.00
BUY PUT APR-40 FFQ-PH OI=333 at $1.60 SL=0.75

Average Daily Volume = 562 K


TMPW - TMP Worldwide $33.03 (-2.10 last week)

TMP Worldwide is a recruitment advertising agency and executive
search and selection firm.  The company has built Monster.com
into one of the Internet's leading career destination portals.
In addition to offering these career solutions, TMPW is a yellow
page advertising agency.  The company has more than 60,000
clients, including over 90 of the Fortune 100 and over 480 of
the Fortune 500.

When you find a persistent trend that continues to work, smart
traders would do well to stick with it.  Despite the fact that
job losses have slowed in recent weeks and the employment
statistics are starting to improve marginally, there isn't much
talk of large companies doing much in the way of fresh hiring. 
This lack of growth can be clearly seen in the daily chart of
TMPW, which has been in a persistent trend of lower highs since
March of 2000.  In fact the descending trendline, connecting all
the highs since August of 2000, still rests up at $42.50, just
above the 200-dma ($42.20).  Note that TMPW hasn't been able to
seriously test this trendline since early January and brief forays
above the 200-dma continue to be met with fierce selling.  That
appears to be the case again right now, after TMPW rolled over
near the $39 level earlier this month.  Friday's price action was
particularly damaging, with the stock falling below the 20-dma
($33.80) and posting a fresh sell signal on the PnF chart.  This
double-bottom breakdown gives us a bearish target of $26, which
corresponds to the intraday lows from late February.  Look for
entries to materialize on a failed rally at the $34 resistance
level, or possibly as high as $36.  Alternatively, use a breakdown
under the $31.50 level to initiate fresh momentum-based positions.
Place stops at $37.

BUY PUT APR-35*BSQ-PG OI=1806 at $3.80 SL=2.25
BUY PUT APR-30 BSQ-PF OI= 373 at $1.40 SL=0.75

Average Daily Volume = 2.93 mln






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The Option Investor Newsletter                   Sunday 03-24-2002
Sunday                                                      4 of 5


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*****************
CURRENT PUT PLAYS
*****************

MIL - Milipore $44.86 (-1.61 last week)

Millipore Corporation and its subsidiaries are engaged primarily
in the development, manufacture and sale of products that are
based on separations technology and are used for the analysis,
identification and purification of liquids and gases. Millipore
also generates revenues from the manufacture and sale of products
based on electromechanical and pressure differential technologies
to monitor and control critical aspects of the manufacturing
process for integrated circuits.

Following the breakdown early last week, MIL spent the latter
half of the week trading sideways.  It remains to be seen if
the last three sessions has been merely a short term
consolidation ahead of the next leg lower, or if it's been the
beginning of a short term bottom in the stock.  The pattern
of gradual selling remains intact, which keeps our bearish
ideas alive this weekend.  We're lowering our stop to the
most recent relative high just below the $47 level.  If we see
that level broken above in next week's trading, then MIL will
most likely have formed a short term bottom, having removed the
downside risk in this play.  However, the stock just as easily
breakdown in next week's trading below its recently established
lows.  If the breakdown does come next week, then we'll see
MIL definitively decline below the $44 level.  That should open
the way for additional long liquidation and potential bring
in a large number of shorts who should pressure the stock
lower into the short term.  The stock seems to continue to
trade along with the broader market, so naturally we'd like to
see the market give up some ground in next week's trading and
add additional supply to MIL.  In terms of action points,
intraday rallies up to the 10-dma in the high $45s to as high
as $46.50 could be used to enter bearish plays.  Just make
sure to watch for a rollover and internal weakness in the
stock before trying to pick a relative top.  Lower volume on
any intraday strength could be indicative of a weak rally
and a following rollover.  Those who favor the momentum type
of entry points can use a decline below the $44 level to
enter new put positions.

BUY PUT APR-50 MIL-PJ OI= 0 at $5.60 SL=4.00
BUY PUT APR-45 MIL-PI OI=10 at $2.10 SL=1.00

Average Daily Volume = 325 K



GDW - Golden West Financial $62.47 (-3.33 this week)

Golden West Financial Corporation is a savings and loan holding
company, the principal business of which is the operation of a
savings bank business through its wholly owned savings bank
subsidiary, World Savings Bank, FSB. The Company operates 120
savings branch offices in California, 37 in Florida, 36 in
Colorado, 22 in Texas, 15 in Arizona, 11 in New Jersey, eight
in Kansas, and four in Illinois. 

The potential for higher short-term rates is pressuring
select segments of the financial sector.  Specifically, the
savings and loans have seen heavy selling in recent sessions.
The Fed's move to a neutral bias signaled an end to the
historic reduction in short-term lending rates that we
witnessed in the past year.  Indeed, long-term rates have
been rising as signaled by the recent rally in the benchmark
10-year Yield (TNX.X).  The rise in long-term rates seems to
suggest that short-term rates will follow.  J.P. Morgan
raised those concerns last week when the brokerage firm
reduced its investment rating on shares of Golden West.
Analysts at J.P. Morgan cut their rating to a long-term
buy from a buy rating.  The basis for the downgrade was an
expectation for a drop in earnings due to a lower spread in
rates.  J.P. Morgan went on to suggest that earnings would
drop off after the first quarter due to a slow down in loan
originations because of higher long term rates.  Although it's
still very early for the potential of a hawkish monetary
policy and the higher short term rates that accompany such a
monetary stance, the bears are now waiting to pounce on stocks
such as GDW that are closely tied to the ebbs and flows of
short term rates.  The stock broke down last week, issuing
its first sell signal since last October.  The stock
stopped at the $61 support level, which may continue to
provide help going into next week's trading, depending on
what the broader market does.  Traders who like playing
breakdowns can use a decline below the $60 level as an entry
point with a downside target at the $55 level.  If the market
does rally and carry GDW higher next week, then target intraday
rollovers between the $63 and $65 potential resistance zone.
Also, keep an eye on bond yields as a rising TNX.X could help
to pressure GDW lower.

BUY PUT APR-65 GDW-PM OI=360 at $3.50 SL=2.00
BUY PUT APR-60*GDW-PL OI=155 at $1.20 SL=0.75

Average Daily Volume = 780 K



ISSX - Internet Security Systems $25.89 (-2.31 last week)

Internet Security Systems is a global provider of security
management solutions for protecting e-business.  The company's
Adaptive Security Management approach to information security
protects distributed computing environments from attacks, misuse
and security policy violations, while ensuring the
confidentiality, privacy, integrity and availability of
proprietary information.  ISSX delivers an end-to-end security
management solution through its SAFEsuite security management
platform coupled with around-the-clock remote security
monitoring through the company's managed security services
offerings.

Did you catch a piece of that entry point?  The short covering
on Thursday lifted shares of ISSX off the $25.50 level, but the
bears were back in charge on Friday, hitting the stock for more
than a 5% loss.  We've been focusing on ISSX due to the
relatively poor performance of the Internet Security stocks in
recent weeks and that doesn't look like it is likely to change
anytime soon.  VRSN cast a pall over the group on Wednesday,
revealing in its 10K that a portion of its sales were actually
barter deals with other firms like IBM.  Whether that issue
exists at other firms like ISSX, it is clear from the recent
price action in the stock that all is not well.  After falling
to support and getting a bit of a bounce on Thursday, ISSX moved
up to the 20-dma ($27.57), where the bears were lying in wait,
pushing it right back down to support.  Any intraday bounce that
fails to penetrate the $28 resistance level looks like an
attractive entry on the subsequent rollover.  Alternatively, wait
for support at $25, (the site of the 50% retracement of the fall
rally) to give way, preferably on heavy volume, before opening
new positions.  Lower stops to $28.50.

BUY PUT APR-30 ISU-PF OI=716 at $5.50 SL=3.50
BUY PUT APR-25*ISU-PE OI=468 at $2.35 SL=1.25
BUY PUT APR-22 ISU-PX OI=388 at $1.35 SL=0.75

Average Daily Volume = 2.71 mln


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*****
LEAPS
*****

Inchworm, Inchworm
By Mark Phillips
Contact Support

Jeff Bailey frequently uses the snake or inchworm analogy to
describe sectors of the market or even the whole enchilada.  The
basic concept is that first the head of the snake or inchworm
will move forward, then the tail and body catch up, allowing the
head to once again move forward.  Here's the problem with our
markets-- the belly of the inchworm is glued to the ground.  Can
you imagine the lunacy of an inchworm trying to move forward
without the ability to raise that belly off the ground?  The
front and back of the inchworm would gyrate wildly in an attempt
to create forward progress, but the only net result is that the
inchworm would get tired.  

Doesn't that seem awfully similar to the current state of the
markets?  We test (and sometimes break resistance) as the
stronger sectors forge ahead (head of the inchworm).  But then
we test and sometimes break support as the weaker sectors fall
back (can you say Telecom?).  And then there is the bulk of the
market that is pretty much stuck in the middle.  Here are a
couple of perfect examples of that lack of progress that the
belly of the inchworm is experiencing.  Except for a couple of
brief, panic-induced selloffs, shares of chip giant INTC have
been stuck between $25-35 for over a year and right now sit in
the middle of that range at $30.59.  And what about industrial
conglomerate GE?  It looks to me like this stock has moved into
a new, lower trading range in the $35-42 area until things
improve.  And if conditions worsen, then I wouldn't be surprised
to see an even lower trading range develop.

Why the dramatic about face on GE?  Well, I was starting to cool
my heels on the stock after yet another rejection at the $42
resistance level, but the thing that pushed me off the fence here
was the comments from PIMCO's Bill Gross last week.  Stating that
his funds would carry no commercial GE paper for the foreseeable
future may seem like no big deal to stock traders, but believe
me, it is potentially huge.  The reasoning behind his action is
that GE has commercial paper outstanding which totals three times
the size of their bank lines which back them up.  Excuse me??  Is
that like borrowing against your house to the tune of 300% of its
fair-market value?  Exactly!  No wonder PIMCO is getting out
while the getting is still fairly good.

Don't get me wrong, GE is still a great company and the only
remaining component of the original Dow 30.  But there is an
excessive debt load and now questions are starting to be raised
about the way the company has created its growth over the past
decade -- namely through acquisitions.  GE has acquired more than
100 companies in each of the past 5 years using the company's
high P/E stock or commercial paper through GE Capital.  Needless
to say, I no longer want to keep GE in the Watch List.  The stock
may go up or it may go down, but the risks of holding it over the
long term just increased significantly in my opinion.

Our play on the Biotech sector through the BBH HOLDR is
performing well.  Although it is moving in a 2 steps forward, 1
step back fashion, it continues to move steadily up the chart.
Last week's move through the long-term descending trendline near
$125 was an important milestone on the road to recovery, giving
me the confidence to raise our stop to the $120 level.  My hat's
off to our very own Eric Utley, who called a bottom in this
sector back in early February.  The next hurdle for the bulls
to overcome will be the $130 area followed by $135, the site of
the shorter-term (10-month) descending trendline.  With the
weekly Stochastics still rising solidly towards overbought, dips
into the $122-123 area still look buyable for new positions.  Our
long-term forecast is for the BBH to top the $140 level as the
PnF chart is telling us that the bullish price target is a lofty
$144.

But coming back to the inchworm analogy of the markets, here's
another stock that has caught my attention lately -- not for a
trade, but for an indication of the kind of rangebound action we
are seeing in so many areas of the market.  AMGN is the big daddy
of the Biotechs, but can't seem to get moving, with a nearly
2-year series of lower highs under its belt and numerous bounces
from the $53 support area as the stock builds a huge descending
wedge.  I don't have an opinion on this stock right here, but it
certainly seems to be the proverbial belly of the inchworm, glued
firmly to the ground.

IBM continues to consolidate above support and below resistance,
keeping us in a wait and see position.  The stock looks like it
could charge back towards the $115 level, but first will need to
clear the formidable resistance resting near $109, which happens
to be just above the 200-dma.  Support has been building above
the $103 level, and it appears unlikely that we'll see the $100
level tested again without a significant negative event.  So I'm
raising the stop this weekend to $100.

Continuing to show good relative strength, shares of JNJ are
holding up well, and I would expect the stock to shoot to new
highs once the daily oscillators bottom in oversold and turn up
again.  For those still looking to enter this trade, I would look
at a dip and bounce in the $62.50-63.00 area to be a gift of an
entry point.  Another glance at the PnF chart, shows the vertical
count off the current column of X's to be projecting an eventual
price target of $86.  Whether it moves that high remains to be
seen, but it appears there is plenty of upside potential
available.

And what about the Watch List?  Although sorely tempted on a
couple of occasions, I refrained from taking any positions this
week.  The ones that had my attention were the LUV play and BRCM.
I was really thinking about ignoring all my technical analysis
on LUV and taking the entry as the stock rebounded from just
above its 200-dma last week on the theory that the Transports
(and the Airlines too) were set to head north again.  But with
the weekly Stochastics for both LUV and the XAL index in bearish
mode, I decided to sit this one out and wait for a better entry.
I think we'll get another chance to enter this play in the $18
area and possibly a bit lower, now that the momentum in the
sector has slowed somewhat.  Note the lowered entry target this
weekend.

BRCM was giving me all the signs for a solid entry on Friday
morning with those daily Stochastics trying to peek up out of
oversold territory.  But the closing price action was quite
disconcerting.  I want to see healthier price action off the $36
level before taking a position.  Let's see what happens next
week as portfolio managers engage in their end-of-quarter
window dressing.  Target lowered here as well.

I just knew that move up on the daily Stochastics on MDT wasn't
to be trusted.  See how it rose from oversold to overbought with
very little upward price action?  Now that the downward cycle has
begun, look for an entry to materialize near our target in the
relatively near term.

If you aren't using the Market Monitor during the day (or at the
end of the day for those of you that have day jobs), you're
missing out on a tremendous information source.  Eric and Jeff do
a top-notch job of highlighting all the little stock and sector
developments as they occur, and penned some insightful commentary
on the solid move in the Utility sector this week.  It looks like
I'm not going to be so fortunate as to grab an entry on the DYN
play down at the $27 target, with the UTY sector breaking out.
While I'm leaving that target in place, just in case, I'm adding
a slightly higher one at $29 this week.  The daily Stochastics
are just starting to roll over and we'll just have to see where
price bottoms out on this oscillator cycle.  I'm hoping for $27,
but expecting something closer to $29.

I hesitate to even say anything about the VIX this week.  It
continues to work lower and is now under 20, for the first time
since early September of 2000.  I think we can all remember
what happened shortly thereafter, as the market dove and the VIX
soared.  Many have offered the opinion that this time it will
be different, that a rising market will accompany the next
substantial increase in the VIX.  Could it happen?  Sure, and
pigs might fly.  Hey, it could happen.  But there is zero
historical evidence to point to either of these events coming to
pass.  So until confronted with hard evidence, I will continue
to use the low readings of the VIX to be very careful about
playing the long side.  By the way, Eric has been doing a great
series on the VIX in his Market Sentiment column.  If you'd like
to know more about the VIX and have missed his musings, I highly
recommend taking a few minutes to check it out.

For those of you that are disappointed with the lack of new plays
this week, you'll get what you wish soon.  Next weekend, I'm
heading out of town early for some much-needed R&R, so the LEAPS
column will look a bit different.  I'm going to focus early in
the week on new plays for the Watch List and expect to have them
written by mid-week.  But I'm going to keep the introductory
commentary rather light, so that I can get an early start on the
weekend.  So look for several new plays next week to whet your
appetite!

Have a great week!


Mark Phillips
mphillips@OptionInvestor.com



LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
BBH    03/03/02  '03 $120  OEE-AD  $16.60  $20.00  +20.48%  $120
                 '04 $120  KBB-AD  $26.20  $29.90  +14.12%  $120
IBM    03/03/02  '03 $110  VIB-AB  $ 9.80  $10.00  + 2.04%  $100
                 '04 $110  LIB-AB  $17.00  $17.80  + 4.71%  $100
JNJ    03/05/02  '03 $ 60  VJN-AL  $ 5.90  $ 8.30  +40.68%  $61
                 '04 $ 60  LJN-AL  $ 9.20  $12.30  +33.70%  $61


Puts:
None


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
BRCM   10/28/01  $35-36        JAN-2003 $ 40  OGJ-AH
                            CC JAN-2003 $ 35  OGJ-AG
                               JAN-2004 $ 40  LGJ-AH
                            CC JAN-2004 $ 35  LGJ-AG
LUV    12/09/01  $18-19        JAN-2003 $ 20  VUV-AD
                            CC JAN-2003 $ 15  VUV-AC
                               JAN-2004 $ 20  LOV-AD
                            CC JAN-2004 $ 15  LOV-AC
MDT    03/10/02  $40-42        JAN-2003 $ 45  VKD-AI
                            CC JAN-2003 $ 40  VKD-AH
                               JAN-2004 $ 45  LKD-AI
                            CC JAN-2004 $ 40  LKD-AH
DYN    03/17/02  $27, $29      JAN-2003 $ 30  ONO-AF
                            CC JAN-2003 $ 25  ONO-AE
                               JAN-2004 $ 30  KYK-AF
                            CC JAN-2004 $ 25  KYK-AE


PUTS:

EK     01/27/02  $34-35, $32   JAN-2003 $ 30  VEK-MF
                               JAN-2004 $ 30  LEK-MF




New Portfolio Plays

None


New Watchlist Plays

None


Drops

GE $37.87 Most of the reasons for dropping GE were detailed in
the commentary above.  But even without the disturbing
revelations about the companies debt and profit structure, I
would still be considering a drop of the stock.  While it hasn't
had a major selloff lately, neither has it had a significant
move to the upside either.  And the long-term picture on the PnF
chart is looking poor too, with a current price target well below
$30.  A dip into the $20s might make for an attractive entry
point on the stock, but with the other issues clouding the
fundamental picture, I believe the best choice is to avoid the
stock altogether for now.



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offers contingent option orders based on the price of the 
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**********

Please read our disclaimer at:
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**************************************************************
ADVERTISING INFORMATION

For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support
The Option Investor Newsletter                   Sunday 03-24-2002
Sunday                                                      5 of 5


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*************
COVERED CALLS
*************

Trading Basics: E-mails, E-mails, Everywhere...Q&A Continued!
By Mark Wnetrzak

This week's questions concern timing the entry with covered-call
positions and evaluating the potential for early assignment.


Hello Mark,

I read your section each week and the picks you make are almost
always viable candidates for covered-calls.  Since I am in favor
of a "technicals-based" approach to position selection, I wonder
if the plays might be improved with a more precise method of
timing the stock purchase.  I personally try to initiate the
"buy-in" when the stock begins to break above a long-term base
or when it dips to the bottom of an established trading range.
Then I wait for upward movement to sell the call, usually when
the stock nears a resistance level or overbought area.  What do
you thing of using this tactic with the covered-call strategy?

LP


Regarding Position Entry Techniques:

The method you described can be very successful when correctly
applied but it is not appropriate for every investor or trading
strategy.  A "single entity" approach to writing covered-calls,
where an investor is not interested so much in stock ownership
or bullish movement but in obtaining a consistent (monthly)
return on investment, is not dependent on timing the bottom of
a dip or the break-out to a new upward trend.  The primary goal
of most investors is to find plays that earn acceptable returns
while receiving an above-average amount of downside protection.
Using this strategy, a covered-call writer is more interested in
the overall technical outlook of the underlying issue throughout
the duration of the option series chosen.  The questions a trader
asks in this case are: Is there a high probability the stock will
remain above the cost basis (break-even point) until expiration
and does it meet the risk-reward tolerance of my portfolio?  The
answers must be affirmative or the position should be avoided.
Generally, whether the (ITM) covered-write strategy is applied
short-term or even longer term, it requires a neutral to bullish
outlook on the underlying equity and the overall industry/market.
If one believes the underlying stock will decline below the cost
basis or the overall market is due for a correction, searching
for a different candidate or waiting for a more optimum time to
enter the position is prudent.

However, if you desire stock ownership or are writing calls on
stocks in your long-term portfolio that you don't want to sell,
short-term timing becomes much more important.  Essentially, an
investor of this type would be writing (covered) calls against
his permanent stock positions and the use of more precise trend
indicators can certainly increase the probability of success with
this technique.  Regardless of the approach you favor, it should
be carefully adapted to match your portfolio outlook and personal
trading style.

Lawrence McMillan adeptly outlines the covered-write strategies
in his book "Options: As a Strategic Investment" and "Trading for
a Living," by Dr. Alexander Elder, may also provide some insight
on market psychology and short-term trading techniques.

Regards,

Mark W.
OIN



Hello OIN,

I have been reading the CD (renewal package) about covered calls,
and I am wondering how I can evaluate the risk/luck of being
called away.  If I write an option, will I be called away only
the day of expiration, or even earlier?  And will I be called
away anyway if the call has still an intrinsic value at date of
expiration?

Thanks to respond my questions
EVI


Regarding early assignment and probability of profit

Generally, as long as there is time premium left in the call,
there is little risk of early assignment (and you are earning
time premium by staying with the original position).  Once an
option trades at parity or a discount (or nears expiration),
there is a significant probability of exercise by arbitrageurs
(floor traders who don't pay commissions).  An option writer
has several choices at this point: do nothing, get called out
and accept the original profit established; or, if appropriate,
close the position early (evaluate extra commissions versus an
increased annualized return); or roll the call up/down and/or
forward to a different strike.  Remember, "intrinsic value" is
the value of an option if it were to expire immediately with
the underlying stock at its current price and at expiration,
you should expect that any option with intrinsic value will be
assigned.  "Options: A Strategic Investment," by Larry McMillan
is an excellent resource for option traders, and reading the
chapter on covered-calls is highly recommended.

Regarding probability analysis, I mentioned two weeks ago that
a Monte Carlo style calculator forms a model and runs repeated
randomly generated instances of the situation to get a prediction
as to how the process might behave.  This style of simulation can
give you the probabilities of a stock ever reaching the target at
any time during the life of a position.  Technical analysis is
also used by many professionals to identify areas of support or
resistance, which can assist in evaluating the probability of a
favorable outcome as well as help identify proper exit points.
The book, "Secrets for Profiting in Bull and Bear Markets," by
Stan Weinstein, is an excellent reference and should help provide
a basic understanding of evaluating stocks and their potential
movement.

Regards,

Mark W.
OIN

Editors note: The current standards for auto exercise of equity
options range between $0.25 to $0.75, depending on whether the
option is being assigned by the broker or the exchange.


SUMMARY OF PREVIOUS CANDIDATES
*****
Note:  Margin not used in calculations.

Stock  Price  Last   Call  Strike Price   Gain   Potential
Symbol Picked Price  Month Sold   Picked  /Loss  Mon. Yield

PRCS    5.43   5.52   APR   5.00  0.85  *$  0.42   8.0%
MANU   19.42  18.55   APR  17.50  3.40  *$  1.48   6.7%
NXTP    6.05   6.66   APR   5.00  1.50  *$  0.45   6.1%
SIPX   11.15  11.00   APR  10.00  1.90  *$  0.75   5.9%
RSTO   12.69  11.00   APR  10.00  3.30  *$  0.61   5.6%
REV     5.70   5.89   APR   5.00  1.00  *$  0.30   5.5%
PVN     5.71   7.12   APR   5.00  1.05  *$  0.34   5.3%
SYXI   11.26  11.85   APR  10.00  1.85  *$  0.59   4.5%
GSPN   14.09  15.34   APR  12.50  2.20  *$  0.61   4.5%
ENDO   18.40  18.36   APR  17.50  1.75  *$  0.85   4.4%
AEIS   32.59  34.52   APR  30.00  4.00  *$  1.41   4.3%
ZOMX    7.93   7.28   APR   7.50  0.85   $  0.20   2.5%
ATVI   32.30  28.06   APR  30.00  4.00   $ -0.24   0.0%
ICST   23.78  20.36   APR  22.50  3.00   $ -0.42   0.0%
GMST   22.59  15.70   APR  20.00  4.10   $ -2.79   0.0%

*$ = Stock price is above the sold striking price.

Comments:

Is it just me or is it getting a bit "toppy" out there?  With so
many traders expecting an "end of quarter" ramp up - will there
actually be one?  Revlon (NYSE:REV) and Providian (NYSE:PVN) are
beginning to cause some "call-sellers" remorse - time will tell.
Of the four stocks on last week's watch list, Gemstar-TV Guide
(NASDAQ:GMST) was hammered after releasing news of a substantial
fourth-quarter net loss and of delays in their patent infringement
case.  We will show the position closed but longer-term investors
(who don't mind tying-up the capital) may decide to adjust the
position by rolling down and forward to a NOV-$15 or $17.50 call.
Activision (NASDAQ:ATVI) and Integrated Circuit System (NASDAQ:
ICST) are at a key moment and with the current market malaise, an
early exit may be prudent.  We still have a bit of downside room
with Manugistics (NASDAQ:MANU) and the stock did manage to stay
above its 30-dma, so we'll monitor it closely for the next few
days.  Two stocks suffered this week after releasing disturbing
news:  Zomax (NASDAQ:ZOMX) terminated its purchase of iLogistix
and Restoration Hardware (NASDAQ:RSTO) offered a multi-quarter
earnings restatement with its 4th-quarter earnings.  Time to take
a "break-even" exit and move onto greener pastures?


NEW CANDIDATES
*********

Sequenced by Company
*****
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

CANI    8.61  APR  7.50   CDU DU  1.45 204    7.16   28    5.2%
CTLM   12.96  APR 12.50   UUM DV  1.20 169   11.76   28    6.8%
EMKR    9.15  APR  7.50   EUH DU  2.00 3      7.15   28    5.3%
ENTG   15.01  APR 15.00   UFN DC  0.70 43    14.31   28    5.2%
HOFF   11.38  APR 10.00   UHH DB  1.75 69     9.63   28    4.2%
JDEC   18.21  APR 17.50   QJD DW  1.60 638   16.61   28    5.8%
SCIO   31.36  APR 30.00   UIO DF  2.80 313   28.56   28    5.5%

Sequenced by Target Yield (monthly basis)
*****
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

CTLM   12.96  APR 12.50   UUM DV  1.20 169   11.76   28    6.8%
JDEC   18.21  APR 17.50   QJD DW  1.60 638   16.61   28    5.8%
SCIO   31.36  APR 30.00   UIO DF  2.80 313   28.56   28    5.5%
EMKR    9.15  APR  7.50   EUH DU  2.00 3      7.15   28    5.3%
CANI    8.61  APR  7.50   CDU DU  1.45 204    7.16   28    5.2%
ENTG   15.01  APR 15.00   UFN DC  0.70 43    14.31   28    5.2%
HOFF   11.38  APR 10.00   UHH DB  1.75 69     9.63   28    4.2%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even 
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

*****
CANI - Carreker  $8.61  *** Cautiously Optimistic! ***

Carreker (NASDAQ:CANI) is a provider of integrated consulting 
and software solutions that enable banks to identify and implement
e-finance solutions, increase their revenues, reduce their costs
and enhance their delivery of customer services.  The company's
offerings fall into four groups: Revenue Enhancement, which enable
banks to improve workflows, internal operational processes and 
customer pricing structures; PaymentSolutions, which address the 
needs of a critical function of banks, the processing of payments
made by one party to another; Enterprise Solutions, which provides
conversion, consolidation and integration consulting services and 
products on a bank-wide basis; and CashSolutions, which optimizes 
the inventory management of a bank's cash on hand.  CANI rallied
sharply in February after the company raised its 4th-quarter 
earnings guidance, citing revenues carried over from the previous 
quarter.  Carreker surged in March after the company reported 
earnings that were in fact, well-above consensus analyst expect-
ations.  As the company said in February, the revenue in their
Technology business continued to exceed expectations.  The stock
has broken above resistance near $6.50 and again near $7.50.
This position offers a reasonable entry point for investors who 
retain a bullish outlook on the company.

APR 7.50 CDU DU LB=1.45 OI=204 CB=7.16 DE=28 TY=5.2%


*****
CTLM - Centillium Communications  $12.96  *** Rally Mode! ***

Centillium Communications (NASDAQ:CTLM) designs and markets
communications chipset solutions for central office equipment,
digital loop carrier line cards, and customer premise equipment
for DSL, Voice over Packet (VoP) and Premise Networking markets.
The company provides broadband equipment vendors with system-level 
products for the DSL market, and is leveraging its core technology
and expertise to develop products for complementary markets that
share common technologies and customers.  In January, Centillium
said revenues for the 4th-quarter ended December 31, 2001 were 
$34.5 million and pro forma net income was $200k, or $0.01 per 
share.  In February, Frost Securities raised their rating on the
company from "Buy" to "Strong Buy."  The stock continues to rally
off the September low and is now trying to move above the August
high.  We simply favor the recent move above the 150-dma (which
now provides support) on increasing volume. 

APR 12.50 UUM DV LB=1.20 OI=169 CB=11.76 DE=28 TY=6.8%


*****
EMKR - EMCORE  $9.15  *** Bottom Fishing ***

EMCORE (NASDAQ:EMKR) develops and manufactures compound semi-
conductor products to advance global communications and solid 
state lighting applications.  The company offers a diverse 
portfolio of compound semiconductor products, including: optical
interconnects and devices for data and telecommunications applic-
ations; electronic materials for wireless and data and tele-
communications; solar cells for satellite communications; and
metal organic chemical vapor deposition (MOCVD) tools for the
growth of optoelectronic materials.  Not much news other than
the appointment of a new COO (Larry Kapitan).  The stock has
forged a 7-month base with support near $8 and some positive
long-term technical divergences suggest an upside resolution.

APR 7.50 EUH DU LB=2.00 OI=3 CB=7.15 DE=28 TY=5.3%


*****
ENTG - Entegris  $15.01  *** Revenue Beats Expectations! ***

Entegris (NASDAQ:ENTG) is a provider of materials management 
solutions that protect and transport the critical materials 
used in the semiconductor and other high technology industries,
in particular, the semiconductor manufacturing and disk manu-
facturing markets.  The company's materials management solutions
assure the integrity of materials as they are handled, stored,
processed and transported throughout the manufacturing process,
from raw silicon wafer manufacturing to packaging of completed
integrated circuits.  On March 15, Entegris said the loss for 
its fiscal 2nd-quarter will be less than previously forecast on
higher-than-expected revenues.  The company said it now expects
to report revenues of $50 million and a net loss of 2 cents per 
share when it reports earnings Monday, March 25.  The stock
is rallying strongly and appears ready to take out the June 
high of $15.20.  This position offers a reasonable entry point
for investors looking for an addition to a long-term portfolio
as near-term support is around $13.

APR 15.00 UFN DC LB=0.70 OI=43 CB=14.31 DE=28 TY=5.2%


*****
HOFF - Horizon Offshore  $11.38  *** Oil/Gas Services ***

Horizon Offshore (NASDAQ:HOFF) provides marine construction 
services to the offshore oil and gas industry.  The company 
operates primarily in the U.S. Gulf of Mexico, with additional
operations extended into Mexico, and Central and South America.
The primary services provided by Horizon include installing 
pipelines in the Gulf of Mexico and selected international 
markets; providing pipe-bury, hook-up and commissioning services;
and installing production platforms and other structures, and
then disassembling and salvaging them at the end of their life 
cycles.  On March 15, Horizon reported net income for the fiscal
year ending December 31, 2001, of $10.7 million (before a one
time charge), or $0.46 per share diluted. This compares with a 
net income of $6.4 million, or $0.33 per share diluted in 2000.
The stock rallied strongly after earnings though it may now be
due for some consolidation.  We simply favor the "break-out" of
a six-month base and the technical support near our cost-basis.

APR 10.00 UHH DB LB=1.75 OI=69 CB=9.63 DE=28 TY=4.2%


*****
JDEC - J.D. Edwards  $18.21  *** Next Leg Up! ***

J.D. Edwards (NASDAQ:JDEC) delivers integrated, collaborative 
software for supply chain management (planning and execution)
procurement and customer relationship management, in addition
to workforce management and other functional support.  Its 
enterprise software is designed to help organizations manage 
and execute internal business functions, such as manufacturing,
finance, distribution/logistics and other core operational 
processes.  Customers can choose to operate its software on a 
variety of computing environments, and J.D. Edwards supports 
several different databases.  The company distributes, imple-
ments and supports its software worldwide through 55 offices
and more than 350 third-party business partners.  In February,
J.D. Edwards posted fiscal 1st-quarter earnings that beat 
lowered estimates, despite a drop in revenue, and said it 
would meet estimates in the current quarter, citing more 
efficient operations.  We simply favor the bullish technicals
as J.D. Edwards broke above resistance at $17 and this position
offers a method to participate in the future movement of the 
issue with relatively low risk.

APR 17.50 QJD DW LB=1.60 OI=638 CB=16.61 DE=28 TY=5.8%


*****
SCIO - Scios  $31.36  *** New Drug Candidate ***

Scios (NASDAQ:SCIO) is a biopharmaceutical company developing 
novel Sciostreatments for cardiovascular and inflammatory 
diseases.  The company is distinguished by its disease-based
technology platform, which integrates expertise in protein 
biology with computational and medicinal chemistry to identify
novel targets and protein-based small molecule compounds for 
large markets with insufficient treatments.  Its lead product
candidates include Natrecor (nesiritide) and its p38 kinase 
inhibitor, SCIO-469.  On March 11, Scios announced that it has
added a new drug candidate to its pipeline that could become 
the first oral inhibitor of transforming growth factor (TGF-
beta).  TGF-beta is a multifunctional cytokine, a signaling 
protein that is produced in a broad range of diseases charac-
terized by unregulated scarring and eventual organ failure.
The stock has rallied strongly after announcing the new drug
candidate moving above resistance at $29 and posting a new
all-time high.  The upgrade on Friday by Adams Harkness to 
a "Strong Buy" should help the stock gain altitude as it
moves into "Blue Sky Territory."

APR 30.00 UIO DF LB=2.80 OI=313 CB=28.56 DE=28 TY=5.5%


*****

*****************
SUPPLEMENTAL COVERED CALL CANDIDATES
*****************

The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary. 

Sequenced by Target Yield (monthly basis)
*****
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

AZPN   22.72  APR 22.50   ZQP DX  1.65 135   21.07   28    7.4%
DCTM   25.50  APR 25.00   QDC DE  1.95 375   23.55   28    6.7%
GSPN   15.34  APR 15.00   GLQ DC  1.10 2830  14.24   28    5.8%
ENDO   18.36  APR 17.50   PFU DW  1.65 222   16.71   28    5.1%
NMTC   14.18  APR 12.50   QEK DV  2.20 51    11.98   28    4.7%
VRTY   17.14  APR 15.00   YQV DC  2.70 2661  14.44   28    4.2%
VRST   19.85  APR 17.50   UVQ DW  3.00 25    16.85   28    4.2%

*****************
NAKED PUT SECTION
*****************

Success Basics: Option Trading Strategies
By Ray Cummins

One of our new readers asked about the best way for a beginning
trader to approach the options market.


Dear OIN,

I am new subscriber (through your Premier Investor Newsletter)
and am interested in your thoughts about the most successful
trading strategies available in this unique form of investing.
Since I will be starting from scratch, I would appreciate any
ideas you can give me on what books to read and where to go
for more information about the basics of options.

Thank You,

TN


Regarding Option Trading Strategies:

The wonderful thing about option trading is its diversity.  There
are an incredible number of strategies available, one for every
type of market trend, character and outlook.  Positions involving
combinations of calls and puts, with different strike prices and
expiration months, along with index and futures options, offer the
astute trader a variety of ways to participate in the market.  This
assortment provides even the most conservative investor the ability
to construct positions with an acceptable level of risk and reward
in almost any situation.

The primary requirement for profitable trading is the ability to
achieve reasonable returns and control risk effectively.  For this
reason, a trader without specific goals and a loss-limiting system
is certain to fail in the long-run.  A very careful and deliberate
approach to strategy selection is the first step in the process.
After the principal techniques have been identified, it is crucial
to execute them with discipline and consistency.  Discipline in
option trading is the ability to maintain one's self-control and
implement the pre-determined plan.  The most difficult skill that
traders must learn is the ability to overcome human (emotional)
impulses.  When real money is at stake, the influences of greed
and fear (of loss) will attempt to sway your judgment, hindering a
rational thought process.  If you can not overcome these effects,
the chances of success are slim.  In fact, that is the primary
reason it is so important to utilize strategies that promote a
mechanical approach to trading.  Techniques that offer little
opportunity for indecision generally provide more consistent
returns and they are exposed to far less risk than those with a
high level of maintenance.

Indeed, the secret to success in any form of trading is to have
a systematic strategy: a plan of attack.  The options market is
unique because it offers a variety of different ways to profit
however, the risk can often be significant.  The easiest way to
limit or control the potential for loss is to devise and follow
a specific process or set of rules.  The structure of this system
will require a variety of profitable strategies along with the
knowledge to implement and manage them correctly and consistently.
Profitable trading strategies have a number of common traits; well
defined principles, ease of execution and flexibility.  However,
the most important characteristic for the majority of investors is
asset preservation.  In the options market, the successful systems
are generally those which employ sound defensive measures.  The
ability to protect and conserve portfolio capital, while achieving
consistent returns is a fundamental requirement of any profitable
technique.  Fortunately, numerous option-trading strategies satisfy
this criteria and our goal at the OIN is to help novice investors
learn how to utilize the wide variety of trading techniques and
provide them with the tools necessary to profit on a regular basis.

For basic option trading information, visit the CBOE's educational
website: http://www.cboe.com/LearnCenter/

Some of the most popular books among option traders are: McMillan
on Options, by Lawrence McMillan; The Option Advantage, and New
Option Secret by David Caplan; Option Volatility and Pricing
Strategies, by Sheldon Natenberg; and The Complete Option Player,
by Ken Trester.  All of these books are available in the OIN's
online bookstore.

Good Luck!



Attn: Naked Puts Editor

My broker allows my to trade naked puts.  I can see selling two
or three naked puts on a stock since I have enough funds in my
account to purchase the stock if I am "Put" the stock should it
drop below my strike price.  I would like to sell 5 to 10 of
your conservative naked put recommendations, but I see from my
margin account that if I sold this many "naked" puts I would not
have enough funds to cover the purchase of the stock if I am put
the multiple shares.  How does it work if I am put the stock and
I don't have enough funds to cover the cost of purchasing the
stock?  Do you have a day or two to sell the stock before you
are committed purchasing the stock?

Thanks for your help

RK


RK,

Your question is a common one among readers.  Unfortunately, the
answer is often very different among brokers.  The first thing to
understand is that only in rare cases are you put the stock prior
to expiration.  In fact, other than an occasional random assignment,
the underlying issue for any sold (short) put would have to be "deep
in the money" before you had a real possibility of early exercise
and by that time, good position management techniques would have
forced you to close the play to avoid significant capital losses.
Of course, there is always the occasional gapping issue that can't
be avoided, and that is why you are required to have a specific
amount of money in your account; for the apparent (potential)
requirement of buying the stock.  In reality, you often use the
funds to simply close the play under adverse circumstances.

You probably know there are other ways of offsetting a short stock
position (if you are assigned): you might simply buy some lower
strike puts and exercise them -- still a loss, but far generally
cheaper than actually buying/selling the stock on paper.  That's
just one example of the many ways a (personal) broker might help
you resolve a condition that requires additional funds to exit a
particular "play gone bad" but you have to ask them (your specific
brokerage) to explain the manner in which they handle a particular
situation or circumstance.

Hope That Helps,

Ray   

                      *** WARNING!!! ***
Occasionally a company will experience catastrophic news causing
a severe drop in the stock price. This may cause a devastatingly
large loss which may wipe out all of your smaller gains. There is
one very important rule; Don't sell naked puts on stocks that you
don't want to own! It is also important that you consider using
trading STOPS on naked option positions to help limit losses when
the stock price drops. Many professional traders suggest closing
the position when the stock price falls below the sold strike or
using a buy-to-close STOP at a price that is no more than twice
the original premium from the sold option.


SUMMARY OF PREVIOUS CANDIDATES 
*****

Stock  Price  Last   Call  Strike Price   Gain   Potential
Symbol Picked Price  Month Sold   Picked  /Loss  Mon. Yield

GMST   20.69  15.70   APR  15.00  0.60  *$  0.60  11.0%
MSO    19.97  18.94   APR  17.50  0.60  *$  0.60   8.5%
NOVN   22.39  22.05   APR  20.00  0.70  *$  0.70   8.4%
DCN    19.10  19.38   APR  15.00  0.55  *$  0.55   7.8%
ACN    29.89  27.63   APR  25.00  0.85  *$  0.85   7.8%
SYXI   12.05  11.85   APR  10.00  0.25  *$  0.25   7.2%
PLMD   22.83  25.40   APR  17.50  0.50  *$  0.50   7.1%
TER    39.20  37.98   APR  32.50  0.95  *$  0.95   6.9%
MU     38.16  33.90   APR  30.00  0.75  *$  0.75   6.5%
MLNM   25.12  24.22   APR  20.00  0.40  *$  0.40   6.4%
TXN    34.09  33.16   APR  30.00  0.75  *$  0.75   6.3%
IDTI   35.99  32.29   APR  27.50  0.65  *$  0.65   6.0%
LRCX   28.88  28.49   APR  25.00  0.65  *$  0.65   5.7%
MLNM   23.66  24.22   APR  17.50  0.40  *$  0.40   5.6%
MRVL   41.38  40.93   APR  30.00  0.70  *$  0.70   5.6%
PLMD   25.95  25.40   APR  20.00  0.35  *$  0.35   5.5%
MRVL   38.60  40.93   APR  27.50  0.50  *$  0.50   5.3%
VARI   35.40  35.85   APR  30.00  0.55  *$  0.55   5.1%

*$ = Stock price is above the sold striking price.

Comments:

The speculative "bottom-fishing" play in Gemstar (NASDAQ:GMST)
provided all the excitement last week as shares of the popular
TV programming guide provider dropped to historic lows on news
of a substantial fourth-quarter net loss and delays in their
patent infringement case.  Our position is still positive but
traders who no longer want to own the issue should consider
closing the play to preserve capital.  The midweek rally in
technology shares helped a number of our portfolio positions
recover but a few issues remain under scrutiny due to the
mediocre outlook for the NASDAQ.  The only position we are
monitoring specifically for early exit (or adjustment) is:
Micron Technology (NYSE:MU).


NEW CANDIDATES
*********

Sequenced by Company
*****
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

ALXN   25.80  APR 22.50   XQN PX  0.35 195   22.15   28    5.2%
AZPN   22.72  APR 20.00   ZQP PD  0.35 30    19.65   28    5.7%
CBST   20.63  APR 17.50   UTU PW  0.55 91    16.95   28   10.5%
DCTM   25.50  APR 22.50   QDC PX  0.60 4     21.90   28    8.4%
FMKT   27.66  APR 22.50   FAQ PX  0.30 191   22.20   28    5.3%
GNTA   18.05  APR 15.00   GJU PC  0.40 1211  14.60   28    9.5%
SKX    19.20  APR 17.50   SKX PW  0.30 57    17.20   28    5.2%
SNDK   21.10  APR 17.50   SWQ PW  0.25 360   17.25   28    5.3%

Sequenced by Target Yield (monthly basis)
******
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

CBST   20.63  APR 17.50   UTU PW  0.55 91    16.95   28   10.5%
GNTA   18.05  APR 15.00   GJU PC  0.40 1211  14.60   28    9.5%
DCTM   25.50  APR 22.50   QDC PX  0.60 4     21.90   28    8.4%
AZPN   22.72  APR 20.00   ZQP PD  0.35 30    19.65   28    5.7%
FMKT   27.66  APR 22.50   FAQ PX  0.30 191   22.20   28    5.3%
SNDK   21.10  APR 17.50   SWQ PW  0.25 360   17.25   28    5.3%
ALXN   25.80  APR 22.50   XQN PX  0.35 195   22.15   28    5.2%
SKX    19.20  APR 17.50   SKX PW  0.30 57    17.20   28    5.2%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even 
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

*****
ALXN - Alexion Pharmaceuticals  $25.80  *** New Patent! ***

Alexion Pharmaceuticals (NASDAQ:ALXN) develops pharmaceutical
products for the treatment of heart disease, inflammation,
diseases of the immune system and cancer in humans.  Their
two lead product candidates are genetically altered antibodies
that target specific diseases that arise when the human immune
system induces undesired 1inflammation in the human body.
Antibodies are proteins that bind to specific targets and are
used by the immune system to protect the body.  The company's
two lead product candidates are designed to block components
of the human immune system that cause undesired inflammation
while allowing beneficial components of the immune system to
remain functional.  The product candidates are "humanized"
antibodies, designed to block the inflammatory effects of the
components of the immune system known as "complement."  A
humanized antibody is an antibody genetically altered to
minimize or avoid an immune response in humans.  Alexion and
CuraGen Corporation (Nasdaq:CRGN) recently announced they have
entered into a drug target discovery and validation agreement
initially focused in oncology that may be expanded to include
other disease areas.  In addition, Alexion has been issued a
key patent regarding a complement inhibitor for inflammatory
diseases and based on the bullish technical indications,
investors believe this issue has future upside potential.

APR 22.50 XQN PX LB=0.35 OI=195 CB=22.15 DE=28 TY=5.2%


*****
AZPN - Aspen Technology  $22.72  *** On The Move! ***

Aspen Technology (NASDAQ:AZPN) is a supplier of integrated
software and services to the process industries.  The Aspen
ProfitAdvantage solution consists of a comprehensive set of
software and consulting services that supports the company's
customers' collaborative engineering, manufacturing, supply
chain and e-business strategies, and enables its customers to
identify and take advantage of profit opportunities.  Their
solutions improve a variety of business activities, including
streamlining raw material procurement, optimizing production,
reducing the cost of delivering finished products to customers
and increasing returns from plant assets.  These solutions
enable customers to improve their competitiveness and overall
profitability by increasing revenues, reducing operating costs,
reducing working capital requirements and decreasing capital
expenditures.  There's little news to explain the recent rally
in AZPN but the company does have a unique product in a niche
industry.  Traders who favor the technical outlook for the
company's stock can speculate on its future movement with this
conservative position.

APR 20.00 ZQP PD LB=0.35 OI=30 CB=19.65 DE=28 TY=5.7%


*****
CBTS - Cubist Pharmaceuticals  $20.63  *** New Drug! ***

Cubist Pharmaceuticals (NASDAQ:CBST) is a worldwide, specialty
pharmaceutical company focused on the research, development and
commercialization of novel antimicrobial drugs to combat serious
and life-threatening bacterial and fungal infections.  Cidecin
(daptomycin for injection), the company's lead product candidate
and the first in a new class of antimicrobial drug candidates,
called lipopeptides, has demonstrated the ability, in vitro, to
rapidly kill virtually all clinically significant Gram-positive
bacteria, including those that have become resistant to current
therapies.  Cubist expanded its product pipeline by announcing
the development of an oral formulation of daptomycin, and by
acquiring the worldwide rights to research, develop, manufacture
and sell oral ceftriaxone, an orally active version of Rocephin,
which is an intravenous antibiotic.  Cubist recently announced
it will seek U.S. approval this year for its antibiotic Cidecin,
which treats complicated skin and soft tissue infections.  The
company's share value soared on the news but option traders can
establish a lower cost basis in the issue with this position.

APR 17.50 UTU PW LB=0.55 OI=91 CB=16.95 DE=28 TY=10.5%


*****
DCTM - Documentum  $25.50  *** A Big Day! ***

Documentum (NASDAQ:DCTM) develops, markets and supports an open,
flexible, Internet-scalable content management platform that 
enables companies to create, deliver, publish and personalize 
content in various formats across e-business applications. 
The company shipped the 1st commercial version of its Documentum
Server product in late 1992, and since then, substantially all
of its revenue has been from licenses of its family of Internet-
scale content management system products and related services, 
which include maintenance and support, training and consulting 
services.  In January, Documentum beat expectations, posting a
fourth-quarter loss and said it expects to return to operating
profits by the 2nd-quarter of 2002.  Then Merrill Lynch raised
its long-term rating on the company to a "strong buy," saying
changes in Documentum's sales organization are a significantly
positive.  Recently, Deutsche Banc Alex. Brown started coverage
on DCTM with a "buy" rating and a 12-month price target of $28.
On Friday, the issue soared amid speculation it will gain sales
from increased government spending.  Our conservative position
offers a way to profit from future bullish movement in the issue.

APR 22.50 QDC PX LB=0.60 OI=4 CB=21.90 DE=28 TY=8.4%


*****
FMKT - FreeMarkets  $27.66  *** B2B Commerce Enabler! ***

FreeMarkets (NASDAQ:FMKT) creates business-to-business online
auctions and provides electronic commerce technology and services
to buyers of industrial parts, raw materials, commodities and
services.  The company has created over 16,600 online auctions
and their online markets help buyers of direct materials, as well
as indirect materials and services, obtain lower prices and make
better purchasing decisions.  In a FreeMarkets online market,
suppliers from around the world can submit bids in a real-time,
interactive competition.  FreeMarkets' FullSource solution helps
the customer identify and screen suppliers, and also assembles a
request for quotation that provides detailed, clear and consistent
information for suppliers to use as a basis for their competitive
bids.  The company's QuickSource solution enables customers to use
its technology to run their own online markets.  FreeMarkets also
operates the FreeMarkets Asset Exchange for buyers and sellers of
surplus assets and inventory.  FMKT traded at a new 52-week high
Friday and the volume supported rally appears to have additional
upside potential.

APR 22.50 FAQ PX LB=0.30 OI=191 CB=22.20 DE=28 TY=5.3%


*****
GNTA - Genta  $18.05  *** Buying Biotech! ***

Genta (NASDAQ:GNTA) is a biopharmaceutical company whose research
efforts are focused on the development of new biopharmaceutical
products for the treatment of patients with cancer.  The company's
research portfolio is currently divided into four areas including
the Antisense Program, which involves the administration of unique
synthetic oligonucleotides that are complementary to specific mRNA
transcripts; the Gallium Products Franchise, which is a complex,
bone-seeking element that exerts potent effects on the skeletal
system; Androgenics Compounds, which are products comprised of a
portfolio of small molecules that are useful for the treatment of
prostate cancer; and Decoy Aptamers, which employ oligonucleotides
to bind to specific proteins known as transcription factors.  The
company is in the late stages of testing an experimental treatment
for cancer called Genasense and analyst Mark Monane at Needham & Co.
recently reiterated his "strong buy" rating on Genta's stock.  This
position offers a method to speculate on the near-term performance
of the issue in a conservative manner.

APR 15.00 GJU PC LB=0.40 OI=1211 CB=14.60 DE=28 TY=9.5%


*****
SKX - Skechers U.S.A.  $19.20  *** Upgrade = Rally! ***

Skechers U.S.A. (NYSE:SKX) designs and markets branded contemporary
casual, active, rugged and lifestyle footwear for men, women and
children.  The company, through its international distributors,
sells its products in over 100 countries and territories.  Skechers
offers footwear in a broad range of styles, fabrics and colors.  The
company categorizes its footwear into six product lines: Skechers
USA, Skechers Sport, Skechers Collection, Skechers Kids, Somethin'
Else from Skechers and Skechers by Michelle K.  These broad product
lines are offered in varying styles for men, women and children;
however, the Skechers Collection is offered in men's styles only,
and Somethin' Else from Skechers and Skechers by Michelle K are only
offered in women's styles.  Skechers was the target of a new upgrade
Friday by BB&T Capital Markets and the announcement drove the stock
over 10% higher on heavy volume.  Rather than chase the rally with a
stock purchase, traders can profit from continued upside movement
with this conservative option position.

APR 17.50 SKX PW LB=0.30 OI=57 CB=17.20 DE=28 TY=5.2%


*****
SNDK - Sandisk  $21.10  *** Memory For All Your Toys! ***

SanDisk Corporation (NASDAQ:SNDK) designs, manufactures, and sells
flash memory storage products that are used in a wide variety of
electronic systems.  The company has designed its flash memory
storage solutions to address the storage requirements of emerging
applications in the electronics, industrial, and communications
markets.  The company's products are used in a number of rapidly
growing consumer electronics applications, such as digital cameras,
personal digital assistants, portable digital music players, digital
video recorders and smart phones, as well as in industrial and
communications applications, such as communications routers and
switches and wireless communications base stations.  The company's
products include removable CompactFlash cards, MultiMediaCards,
FlashDisk cards and Secure Digital Cards and embedded FlashDrives
and Flash ChipSets with storage capacities ranging from 8 megabytes
to 1.2 gigabytes.  Sandisk is the industry leader among makers of
memory for consumer electronics and the company's share value has
rebounded since early March in the wake of an upgrade from Morgan
Stanley.  Investors who wouldn't mind owning the issue can profit
from its future bullish activity with this position.

APR 17.50 SWQ PW LB=0.25 OI=360 CB=17.25 DE=28 TY=5.3%


*****

*****************
SUPPLEMENTAL NAKED PUT CANDIDATES
*****************

The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary. 

Sequenced by Target Yield (monthly basis)
******
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target 
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

JDEC   18.21  APR 17.50   QJD PW  0.85 100   16.65   28   12.4%
CANI    8.61  APR  7.50   CDU PU  0.30 26     7.20   28   12.4%
ENTG   15.01  APR 15.00   UFN PC  0.75 34    14.25   28   12.1%
CPN    13.91  APR 12.50   CPN PV  0.50 16211 12.00   28   11.7%
FFIV   26.07  APR 22.50   FLK PX  0.65 666   21.85   28    9.4%
WSTC   30.55  APR 30.00   HUD PF  0.95 13    29.05   28    8.2%
MCAF   19.25  APR 17.50   CFU PW  0.40 101   17.10   28    6.8%



SEE DISCLAIMER IN SECTION ONE
*****************************




************************
SPREADS/STRADDLES/COMBOS
************************
An Undertow In The Changing Tide
By Ray Cummins

******************************************************************
                         - MARKET RECAP -
******************************************************************
Friday, March 22

U.S. stocks closed lower today with blue-chip shares leading the
retreat as concerns about corporate profits weighed heavily on
investors.

The Dow industrials lost 52 points to finish at 10,427, despite
a brief surge into positive territory during the session.  The
biggest downside activity was seen in shares of Boeing (NYSE:BA)
McDonald's (NYSE:MCD), Intel (NASDAQ:INTC), International Paper
(NYSE:IP) and Hewlett-Packard (NYSE:HWP).  Traders have focused
intently on any news concerning corporate profits and the report
from McDonald's was not what they wanted to hear.   McDonald's
warned analysts that its first-quarter profits would likely be
slightly below current views and that its 2002 earnings would be
toward the lower end of a previously announced range.  Investors
also reacted negatively to suggestions of lackluster sales at a
unit of Hewlett-Packard.  Ann Livermore, head of HP's services
group, reportedly sent a memo to her managers earlier this week
alerting them that the unit's revenue and profit were running
"well below plan" so far this quarter.  The announcement did not
help HP's flagging share value and the effects spread to other
companies in the computer hardware sector.  By the end of the
day, the NASDAQ Composite Index had slipped 17 points to 1,851,
with software and chip sectors taking the biggest blows.  In the
broader market, weakness came from biotechnology, defense, and
paper issues while pockets of limited buying pressure were seen
in airline, banking and major drug shares.  Stocks in the energy
segment were also under pressure amid growing pessimism about
the sector's earnings prospects but the recent earnings jitters
boosted the precious-metals industry, which is often seen as a
defensive group.  Overall, the Standard & Poor's 500-stock index
lost 4 points to close at 1,148.  Trading volume came in at 1.23
billion on the NYSE and at 1.50 billion on the NASDAQ.  Breadth
was negative, with decliners outpacing advancers by 18 to 13 on
the Big Board and 20 to 15 on the technology exchange.  On the
fund flow front, Trim Tabs reported that all equity funds got an
inflow of $4.4 billion during the week ending March 20, compared
with inflows of $7.6 billion during the prior week.


Last week's new plays (positions/opening prices/strategy):

Best Buy     (NYSE:BBY)   APR65P/70P  $0.60  credit  bull-put
Cardinal     (NYSE:CAH)   APR60P/65P  $0.60  credit  bull-put
Idec Pharma  (NSDQ:IDPH)  APR85C/80C  $0.50  credit  bear-call
XM Satellite (NSDQ:XMSR)  APR17C/12P  $0.05  credit  synthetic
Abercrombie  (NYSE:ANF)   MAY30C/30P  $4.40  debit   straddle
Veeco        (NYSE:VECO)  APR30C/30P  $4.30  debit   straddle

Our speculative position in Satellite Radio Holdings provided
some excitement this week as the issue fell unexpectedly after
the company's auditor questioned XM's ability to continue as a
going concern.  The company's chairman, Gary Parsons, quickly
responded, saying the auditor has raised the "going concern"
issue every quarter since the company has gone public.  He also
noted that the company is "very comfortable with its ability to
continue to fund its business in the normal course."  Regardless
of the company's ability to fund its business, investors now
have something to worry about so it is unlikely the issue will
recover in the near-term.  On a more positive note, all of our
new credit spreads are off to a good start and the volatility
in the market allowed some traders to achieve higher premiums
than we observed (on a simultaneous order basis).  The Reader's
Request debit straddle in Veeco was also active this week while
our conservative "probability play" in Abercrombie has yet to
make a significant move.


Portfolio Activity:

Stocks traded in a big range this week as investors sparred with
market bears for control of equity values in the near-term.  The
outlook for the economy has improved during the past few months
but concern still exists over the future of corporate profits and
analysts are hinting that second quarter earnings results will be
less than favorable.  As if that wasn't enough, worries that the
Federal Reserve will start raising interest-rates later this year
to ward off inflation are starting to emerge in the bond market
and that doesn't bode well for stocks in the coming months.  One
company that may benefit from a rising interest-rate scenario is
Providian Financial (NYSE:PVN) and the issue soared this week on
news the credit card issuer had settled a lawsuit over allegedly
excessive fees and was the target of an upgrade.  Providian said
it would pay $38 million to settle a class-action lawsuit filed
by shareholders that claimed the company inflated its profits by
gouging its customers in the late 1990s.  Estimates on damages
during the period ran as high as $400 million, so a penalty of
only $38 million is very favorable and Providian doesn't expect
the settlement to hurt its turnaround effort because the payment
is covered by insurance.  Our bullish position in the issue was
speculative but the original spread (JUN 5C/7.5C) has already
produced a profit of over 150%.  Another positive outcome from
this week's volatile trading activity was the success of our new
debit straddle in Fomento Economico Mex (NYSE:FMX).  Today, the
(APR40C/40P) position offered a closing credit of $6.50 on $3.90
invested in less than one month.  In the time-selling category,
Pactiv (NYSE:PTV) is trading exactly where we want it for the
April expiration and the brief rally in Dupont (NYSE:DD) offered
a 25% "early-exit" profit for traders who chose to lock-in gains
prior to the retreat in Dow stocks.  One position that deserves
honorable mention is the bullish "synthetic" in St. Jude Medical
(NYSE:STJ) as the underlying issue traded near an all-time high
Wednesday before succumbing to selling pressure in the broader
market.  With three weeks left until expiration, there is still
time for the speculative position to achieve an additional gain
but regardless of the outcome, it appears the sold (short) put
will remain profitable.
 
Questions & comments on spreads/combos to Contact Support
******************************************************************
                  - STRADDLES AND STRANGLES -

With the continued decreased in implied volatility, the number of
stocks with cheap options has climbed to historically high levels.
However, many stocks remain very active thus it is a good time to
buy straddles.  All of these issues meet the basic criteria for a
favorable straddle: inexpensive premiums, a history of adequate
price movement and the potential for volatility in the stock or
its industry.  This simple selection process provides the best
combination of low risk and potentially high reward but, as with
any candidates, they must be evaluated for portfolio suitability
and reviewed with regard to your strategic approach and trading
style.

******************************************************************
CVS - CVS Corporation  $34.38  *** Recent Volatility! ***

CVS Corporation (NYSE:CVS) is principally engaged in the retail
drugstore business.  The company operates over 4,000 retail and
specialty pharmacy drugstores and various mail-order facilities
located in 31 states and the District of Columbia.  During the
past year, the company dispensed over 300 million prescriptions.
The company's operations are grouped into four businesses, Retail
Pharmacy, Pharmacy Benefit Management, Specialty Pharmacy and
Internet Pharmacy.

PLAY (conservative - neutral/debit straddle):

BUY  CALL  MAY-35  CVS-EG  OI=961  A=$1.55
BUY  PUT   MAY-35  CVS-QG  OI=195  A=$2.15
INITIAL NET DEBIT TARGET=$3.50-$3.60  TARGET PROFIT=25-40%


******************************************************************
JPM - J. P. Morgan Chase  $35.20  *** Never A Dull Moment! ***

J. P. Morgan Chase (NYSE:JPM) is a global financial services firm
with operations in over 60 countries.  The company's principal
bank subsidiaries are The Chase Manhattan Bank, Morgan Guaranty
Trust Company and Chase Manhattan Bank USA, National Association.
Its principal non-bank subsidiaries are Chase Securities (CSI)
and J.P. Morgan Securities Inc. (JPMSI).  The bank and non-bank
subsidiaries of J.P. Morgan Chase operate nationally, as well as
through overseas branches and subsidiaries, representative offices
and affiliated banks.  J.P. Morgan Chase's global activities are
internally organized into these business franchises (Investment
Bank, Investment Management/Private Banking, Treasury & Securities
Services, JPMorgan Partners and Retail & Middle Market Financial
Services).  Last year, the company merged its two lead banks, The
Chase Manhattan Bank and The Morgan Guaranty Trust Company of New
York.  The name of the merged bank is J.P. Morgan Chase Bank.

PLAY (conservative - neutral/debit straddle):

BUY  CALL  MAY-35  JPM-EG  OI=1431  A=$1.75
BUY  PUT   MAY-35  JPM-QG  OI=327   A=$1.80
INITIAL NET DEBIT TARGET=$3.25-$3.45  TARGET PROFIT=25-40%


******************************************************************
VIA - Viacom  $50.30  *** Probability Play! ***

Viacom (NYSE:VIA) is a leading global media company, with many
preeminent positions in broadcast and cable television, radio,
outdoor advertising, and online.  With programming that appeals
to audiences in every demographic category across virtually all
media, the company is a leader in the creation, promotion, and
distribution of entertainment, news, sports, and music.  Viacom’s
well-known brands include CBS, MTV, Nickelodeon, BET, Paramount
Pictures, VH1, Viacom Outdoor, Infinity, UPN, TNN: The National
Network, CMT: Country Music Television, Showtime, Blockbuster,
and Simon & Schuster.

PLAY (conservative - neutral/debit straddle):

BUY  CALL  MAY-50  VIA-EJ  OI=751  A=$2.80
BUY  PUT   MAY-50  VIA-QJ  OI=348  A=$2.35
INITIAL NET DEBIT TARGET=$5.00-$5.10  TARGET PROFIT=25-50%


******************************************************************
              - INDEX OPTION SPREADS & STRADDLES -
******************************************************************
QQQ - Nasdaq-100 Trust Series  $36.68  *** Trade The NASDAQ! ***

The Nasdaq-100 Trust Series I is a pooled investment designed to
provide investment results that generally correspond to the price
and yield performance of the Nasdaq-100 Index.  With Nasdaq-100
Index Tracking Stock, you can buy or sell shares in the collective
performance of the Nasdaq-100 Index and the transaction gives you
ownership in the 100 stocks of the Nasdaq-100 Index.  When you
purchase Nasdaq-100 Index Tracking Stock, you're investing in the
Nasdaq-100 Trust, a unit investment trust that holds shares of the
companies in the Nasdaq-100 Index.  The Trust is designed to track
the price and yield performance of the Index, thus you can expect
your Nasdaq-100 Index Tracking Stock to move up or down in value
when the Index moves up or down.

As a trader, you may be familiar with options on individual stocks
where you have the right to buy (call option) or the right to sell
(put option) a particular stock at some predetermined price within
some predetermined time.  The buyer has the rights and the seller
the obligations.  With index options the basic ideas are the same.
Index options allow you to make investment decisions on a specific
industry group or on the market as a whole.  Traders who think the
volatility in technology stocks will continue this month as the
quarterly earnings season begins can attempt to profit from that
activity with this neutral-outlook position.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  APR-37  QQQ-DK  OI=50817  A=$1.20
BUY  PUT   APR-37  QQQ-PK  OI=46291  A=$1.50
INITIAL NET DEBIT TARGET=$2.50-$2.60  TARGET PROFIT=15-20%


******************************************************************
OEX - S&P 100 Index  $580.90  *** OTM Credit-Spreads ***

The Standard & Poor's 100 Index is a capitalization-weighted index
of 100 stocks from a broad range of industries.  The component
stocks are weighted according to the total market value of their
outstanding shares.  The impact of a component's price change is
proportional to the issue's total market value, which is the share
price times the number of shares outstanding.

Traders who participate in OTM credit-spreads often utilize S&P
100 (OEX) options because they generally contain more premium
than options on individual stocks and also provide an underlying
instrument less prone to huge, gapping moves.  This position will
profit if the underlying remains below the sold strike (at 610)
and from a technical viewpoint, the overall market seems likely
to drift lower as the near-term earnings outlook is uncertain.
Review the OIN's Market Sentiment section for specific technical
information on the current trends in equities.

PLAY (conservative - bearish/credit spread):

BUY  CALL  APR-615  OEY-DC  OI=1883  A=$1.00
SELL CALL  APR-610  OEY-DB  OI=2473  B=$1.60
NET CREDIT TARGET=$0.70-$0.75 PROFIT(max)=15%


*****************************************************************
                     - COMBINATION PLAYS -
******************************************************************
UCI - UICI  $16.72  *** Time-Selling Play! ***

UICI (NYSE:UCI) offers primary health and life insurance and
selected financial services to niche consumer and institutional
markets.  The company issues health insurance policies, covering
individuals and families, to the self-employed, association group
and student markets.  The company offers a broad range of health
insurance products for self-employed individuals and individuals
who work for small businesses.  UICI's catastrophic hospital and
basic hospital-medical expense plans are designed to accommodate
individual needs, and include both traditional fee-for-service
indemnity plans and managed care options, such as a preferred
provider organization plan, as well as other supplemental types
of coverage.  For the student market, UICI offers tailored health
insurance programs that generally provide single-school-year
coverage to individual students at colleges and universities.

One of our readers asked for another low-cost calendar spread and
UIC is a good candidate for the bullish version of the popular
time-selling strategy, based on the recent technical indications
and favorable option premiums.  In this case, the underlying issue
is below the strike price of the options, providing a speculative
position with low initial cost and large potential profits.  Two
positive outcomes can occur: the stock climbs to sold strike in
the near-term and the position is closed for a profit when the
time value erosion in the sold option produces a net gain or; the
underlying stock consolidates, allowing the sold option to expire
and then eventually rallies above the long options' strike price,
thus producing a positive return.  Of course, the cost basis of
the long option can be reduced through the sale of additional
calls prior to its expiration in November.

PLAY (speculative - bullish/calendar spread):

BUY  CALL  NOV-17.50  UCI-KW  OI=40  A=$2.00
SELL CALL  APR-17.50  UCI-DW  OI=60  B=$0.35
INITIAL NET DEBIT TARGET=$1.50-$1.55  TARGET PROFIT=50%


******************************************************************


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**************************************************************


************
MARKET WATCH
************

We're sticking with what's been working.  A strong health care and 
weak financial stock make their way onto the list

To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/032402.asp


**********
DISCLAIMER
**********

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